Even if you are a one-person business and have no employees I can show you how your family can become your employees and save you tax dollars.
You'll never pay your children allowance again if you hire them.
Can a business write off the costs of janitorial service? Of course! Since you have a business based in your home, hire your kids to vacuum, dust and take out the trash.
The expense is tax-deductible to you, and the income is tax-free to them. The tax-free limit is $5,450 for 2008. The amount is equal to the 'Standard Deduction.
The IRS says your child must be at least 6 years old in order to hire them.
Children under the age of 18 are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
A formal Employment Contract should be used when you hire family members in order to audit proof this part of your home business deductions.
The IRS stipulates that the wage-rate has to be "reasonable and customary" within your industry and region of the country for the type of work being performed in order to qualify.
You cannot over pay your kids for taking out the trash. You must establish what is "reasonable and customary". You can do this by getting an outside company to give you a written estimate for the work to be performed, and then pay your family member approximately that amount. Or simply determine what a reasonable person might pay an employee or outside contractor for such services, and pay a similar wage to your family member.
Your employees (children) have to document what they did to earn the money, so have them fill out a simple "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
Pay by check once they have turned in their 'work log'.
You must pay your child in order to deduct the wages as a business expense but the law does not restrict how that money is used after it's paid.
Your children can earn up to $5,450 in 2008 which is equal to $104.80 per week.
Pay your kid $104.80 a week in allowance??? No way you say. Not so fast. Let's look at why you might be better off paying your children rather than just giving them an allowance.
So let's presume you have come up with the tax-free limit of $104.80 per week in home-business related "chores" for them to do. At the end of the week they will turn in their 'work log' and you'll pay them by check.
Now it's time to open up an interest bearing checking account for your child in order to deposit and cash payroll checks. Deposit their paycheck every week.
This will be a joint account since your child is a minor. Although technically this is a "joint" account, only you will be authorized to make withdrawals or to write checks on that account, since the child is a minor.
Now you tell your child "I will withdraw $20(for example) out of each weeks pay for you to spend any way you wish, however, the other $84.80 will stay in the (interest-bearing) account to be used by you to pay for your________."
The blank can be filled in with words like graduation trip, car, wedding...whatever you like.
Did you ever, in your wildest dreams, anticipate that you would be able to pay for school supplies and tennis shoes, or pay for cars, trips and weddings out of pre-tax dollars?
This is 100% legal and true! - 15431
You'll never pay your children allowance again if you hire them.
Can a business write off the costs of janitorial service? Of course! Since you have a business based in your home, hire your kids to vacuum, dust and take out the trash.
The expense is tax-deductible to you, and the income is tax-free to them. The tax-free limit is $5,450 for 2008. The amount is equal to the 'Standard Deduction.
The IRS says your child must be at least 6 years old in order to hire them.
Children under the age of 18 are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
A formal Employment Contract should be used when you hire family members in order to audit proof this part of your home business deductions.
The IRS stipulates that the wage-rate has to be "reasonable and customary" within your industry and region of the country for the type of work being performed in order to qualify.
You cannot over pay your kids for taking out the trash. You must establish what is "reasonable and customary". You can do this by getting an outside company to give you a written estimate for the work to be performed, and then pay your family member approximately that amount. Or simply determine what a reasonable person might pay an employee or outside contractor for such services, and pay a similar wage to your family member.
Your employees (children) have to document what they did to earn the money, so have them fill out a simple "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
Pay by check once they have turned in their 'work log'.
You must pay your child in order to deduct the wages as a business expense but the law does not restrict how that money is used after it's paid.
Your children can earn up to $5,450 in 2008 which is equal to $104.80 per week.
Pay your kid $104.80 a week in allowance??? No way you say. Not so fast. Let's look at why you might be better off paying your children rather than just giving them an allowance.
So let's presume you have come up with the tax-free limit of $104.80 per week in home-business related "chores" for them to do. At the end of the week they will turn in their 'work log' and you'll pay them by check.
Now it's time to open up an interest bearing checking account for your child in order to deposit and cash payroll checks. Deposit their paycheck every week.
This will be a joint account since your child is a minor. Although technically this is a "joint" account, only you will be authorized to make withdrawals or to write checks on that account, since the child is a minor.
Now you tell your child "I will withdraw $20(for example) out of each weeks pay for you to spend any way you wish, however, the other $84.80 will stay in the (interest-bearing) account to be used by you to pay for your________."
The blank can be filled in with words like graduation trip, car, wedding...whatever you like.
Did you ever, in your wildest dreams, anticipate that you would be able to pay for school supplies and tennis shoes, or pay for cars, trips and weddings out of pre-tax dollars?
This is 100% legal and true! - 15431
About the Author:
Karin has owned a home business specializing in tax preparation for home based businesses for 36 years. Her website: Home Business Owners-Reap the Rewards provides more tax tips for home business owners. She highly suggests the book 'It's How Much You KEEP, That Counts! Not how much you Make' for all her customers.
