Self-Employed Parent? Why Hiring Your Kids This Summer is a Smart Move
“Summertime jobs offer children opportunities to earn a bit of money and to gain valuable experience. Why not consider hiring your own children to work with you?” - Debra Taylor, CPA/PFS, JD, CDFA, “5 Good Reasons to Hire Your Children This Summer,” Horsesmouth
As schools break for the summer, your children might be looking for ways to earn money and add to their resume with their ample free time. Have you considered the potential benefits of offering your kids a role in the family business? Below are compelling reasons why hiring your children for summer work can be a win-win for both your business and your family, summarized from the above quoted article:
1. Tax Savings and Quality Time: Employing your children can lead to significant tax advantages for your business while allowing you to spend quality time together. By bringing them on board, you can claim a business tax deduction for their wages, potentially reducing your federal and state income tax bills.
2. Reduced Payroll Taxes: If your business structure qualifies, hiring your children could exempt their earnings from Social Security, Medicare, and federal unemployment taxes, further reducing your tax burden.
3. Retirement Savings: Through employment, your children can start contributing to a Roth IRA or your employer-sponsored retirement plan, kickstarting their retirement savings early and potentially accessing penalty-free funds for specific purposes in the future.
4. Personal Growth and Succession Planning: Hiring your children provides them with invaluable real-world experience and business skills, preparing them for future career opportunities. It also lays the groundwork for succession planning, helping them to transition into potential leadership positions within the business later on if they desire. Even younger kids can begin now by assisting with filing, organizing, cleaning, and other simple tasks in the business suited to their age and skills.
Tips for Compliance and Documentation: To maximize and reap the benefits of hiring your children, ensure their work is genuine and aligned with business needs. Keep meticulous records, provide appropriate documentation, and treat them like any other employee to comply with tax regulations. Be sure to meet with your tax professional and financial advisor for guidance appropriate to your situation.
By hiring your children this summer, you may not only enjoy tax advantages but also promote family bonding, arm them with essential skills, and create lasting memories. If you have any questions on how to make this best work for you, please don’t hesitate to reach out for a free consultation! We would love to help you with your business’s and your family's financial future.
(And don’t forget, there are other ways we can support your plans for your children’s success – did you know that with the recent SECURE 2.0 Act passed by Congress, there is a provision allowing college 529 plans to be rolled into Roth IRAs for your kids? Feel free to contact us if you’d like help taking advantage of all the financial benefits available to you and your family.)
