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.
A limitation is that they must be at least 6 years of age.
And, if they are family members under 18, they are exempt from payroll taxes and the business is not required to withhold or to pay Social Security and Medicare taxes.
Your should use a formal Employment Contract to hire your family members in order to audit proof this part of your home business deductions.
In order to qualify, the wage-rate has to be "reasonable and customary" within your region of the country and within your industry for the type of work being performed.
Establishing what is "reasonable and customary" can be as easy as getting an outside company to give you an estimate of what they would charge for the same service and paying your family member a similar wage.
The kids (as employees) 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
Once they have filled in their 'work log' you pay them by check.
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.
But, you say, "Who gives their kids an $104.80/week allowance?" YOU will now! And heres why!
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.
When you open a checking account for your child the bank will require it to be a "joint account" since he/she is a minor. Although it's a joint account only you will be able to make withdraws or write checks on the account since your child is a minor.
Here's where it gets interesting. You tell your child you will withdraw $15 (for example) from each week's pay for them to spend any way they wish. Tell him/her that the other $89.80 will stay in the interest bearing checking account to be used by you to pay for _______.
The blank can be filled in with words such as car, wedding, graduation trip or whatever you want.
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!
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.
A limitation is that they must be at least 6 years of age.
And, if they are family members under 18, they are exempt from payroll taxes and the business is not required to withhold or to pay Social Security and Medicare taxes.
Your should use a formal Employment Contract to hire your family members in order to audit proof this part of your home business deductions.
In order to qualify, the wage-rate has to be "reasonable and customary" within your region of the country and within your industry for the type of work being performed.
Establishing what is "reasonable and customary" can be as easy as getting an outside company to give you an estimate of what they would charge for the same service and paying your family member a similar wage.
The kids (as employees) 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
Once they have filled in their 'work log' you pay them by check.
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.
But, you say, "Who gives their kids an $104.80/week allowance?" YOU will now! And heres why!
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.
When you open a checking account for your child the bank will require it to be a "joint account" since he/she is a minor. Although it's a joint account only you will be able to make withdraws or write checks on the account since your child is a minor.
Here's where it gets interesting. You tell your child you will withdraw $15 (for example) from each week's pay for them to spend any way they wish. Tell him/her that the other $89.80 will stay in the interest bearing checking account to be used by you to pay for _______.
The blank can be filled in with words such as car, wedding, graduation trip or whatever you want.
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!
About the Author:
Karin has owned a home business specializing in tax preparation for home based businesses for 3 decades. Her blog: Home Business Owners-Reap the Rewards offers more income tax for home business owners. She highly recommends the book 'It's How Much You KEEP, That Counts! Not how much you Make' for all her clients.
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