As a boss, you may hire family members and pay reasonable
salaries for the work they do in your business.
For example, you could hire your son or daughter to perform
routine clerical or cleanup tasks. Your child’s salary would be a
tax-deductible business expense, and your child’s income would be tax-free up
to that year’s standard deduction amount for a single taxpayer ($5,950 for
2012). Wages in excess of that amount would be taxed at your child’s rates,
which are probably lower than yours.
You can compound the benefits of this strategy by having
your child contribute to an IRA, which is likely to enjoy many years of
tax-deferred growth.
Wages paid to a spouse by a sole proprietor are subject to
payroll taxes; those paid to your children who are under the age of 18 are not.
Compensation paid has to be reasonable for the services performed.
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