Kidpreneur? Consider Hiring Your Kids This Summer
Raising a young, budding entrepreneur? Start your kids off early, consider hiring them for your place of work.
Many parents of school-age children scramble to find camps and other activities to keep their youngsters occupied. But if you have your own company, you might want to consider hiring your kid for the summer instead.
The tax advantages of hiring your kid can be great for your small company. And your youngster can get invaluable work experience, earn some cash and save for college or even retirement.
What are some things you should consider to make this a win for both you and your child?
First, some caveats. The job must be real and the pay reasonable for the kind of work your kid will be performing–no big bucks for low-skill routine tasks, such as helping log inventory or answering the telephone. And you must keep the same meticulous records for your kid as you do for your “regular” employees: be able to substantiate hours and duties. And don’t forget to issue your child an annual Form W-2.
You can be sure the IRS is going to look with skepticism on a child employee who is younger than 7, so it’s best to limit the hiring to youngsters who are teens or responsible tweens. (And you’ll want to have work done, not be a babysitter anyway.)
The tax benefits to you and your company can be substantial. For one thing, you can deduct your child’s salary from your business income as a business expense. If your kid is under 18, you won’t have to withhold or pay Social Security or Medicare tax in some cases. (Check with your tax attorney or see the IRS website for details.)
Your child won’t have to pay income taxes on any earnings up to $12,200, which is the standard deduction in 2019 for single taxpayers.
Working for mom or dad’s company is also a great way for a youngster to begin saving for college or fund a traditional IRA or a Roth IRA retirement savings program.
Your working child can make annual contributions to a Roth IRA so long as the contribution does not exceed what he or she earned that year. For the 2019 tax year, a working child can contribute up to $6,000, if he or she earned at least that much. The youngster’s age doesn’t matter.
Here’s something to keep in mind when choosing between a traditional IRA and a Roth:
A Roth allows withdrawals that are both tax and penalty free for qualifying educational expenses after five years. A Roth also can be tapped without penalty for a down payment on a house, whereas traditional IRA’s typically impose penalties if funds are withdrawn before age 52.5. That is likely to seem like too long a wait for someone just starting their financial life.
There are other, although non-financial, advantages of hiring your own kid, especially if you are considering having him or her join the company as an adult. Among them:
Starting young gives both of you more time to see whether your youngster is a good fit for the company and will enjoy the work.
In the meantime, you can save the money you would have spent on those summer camps while you enjoy tax advantages and your kid experiences what it’s like to work for a living.
This article was written by Winnie Sun from Forbes and was legally licensed by AdvisorStream through the NewsCred publisher network.