Hiring your kids this summer could save you money!
If you’re a business owner seeking summer employees, you may find good value in hiring your children (who are old enough for employment, of course).Despite the economy’s improvement, students may struggle to find a summer job. Absent any reasons for your kids to gain experience working outside the family environment, and assuming you have legitimate work to complete, you could hire them yourself.You must provide your child a fair wage, but a worker can earn up to the $6,300 standard deduction in 2015 and pay no tax at all. Even if your son or daughter earns more than the standard deduction, he or she will be taxed only at the 10% rate rather than your higher rate.To your benefit, your business has an additional payroll expense to count against its profits.If your child does earn more than $6,300, perhaps by working beyond the summer, he or she could realize additional tax savings—and develop a good life habit—by depositing the excess funds, up to $5,500, into his or her IRA. Theoretically, then, your child could earn up to $11,800 in 2015 without paying any taxes.(Alternatively, your son or daughter could open a Roth savings account, but of course no immediate tax benefits exist when doing so.)While you’ll likely withhold income tax from your student’s paycheck, you may be able to avoid paying FICA and FUTA taxes. Services provided by a child under age 18 are exempt from FICA if that child is employed by a parent. A FUTA exemption exists for children up to age 21.Note: to avoid paying FICA and/or FUTA tax, the business (a sole proprietorship or a partnership) must be wholly owned by a parent or parents. If the business includes non-parent partners, or if the business is incorporated, the same rules apply as for other employees.Other tax credits may be available if your student typically pays kiddie tax or college expenses. Consult your CPA for some tax planning advice.If you need a tax accountant you can depend on, contact the experienced staff at Patrick & Robinson CPAs: Office@CPAsite.com or 904-396-5400.
