Employing your family as part of your business can minimize your family's aggregated profits that are subject to taxes, lessen the rate that their salaries are taxed, or both. This holds true regardless of the type of entity you own (corporation, partnership, etc.). Hiring your loved-ones as part of your staff allows you to deduct their compensation, and the cost of their plans as taxable expenses. Also, there are some employee benefits that are free of taxes for family members.
Good news-present and future
Let's say you have a baby daughter, Laura. If Dina, your wife, is employed in your business, the cost of paying for child care while she holds the job could be reduced by the allowable child care tax credit. Also, you could set up a qualified retirement plan to assist in paying for your spouse's retirement, and possibly help fund your daughter's retirement. It's always best to start saving early.
Retirement plan contributions that are made by the company are usually tax deductible. However, there are certain regulations that are imposed by the IRS. So let's suppose that your child is a teenager who is good at bookkeeping. If you pay her according to the going rate for a bookkeeper, and maintain a record of his or her hours, your child's wages can be deducted as a business cost.
If you choose to hire a family member under age 18, their income are free of Social Security tax as long as the firm is not a corporation. If your child's total pay does not exceed the maximum standard deduction of $6,100 (2013 figure), their income is tax-free. Additionally, earnings that are over this number are taxed at the child's tax rate, which is presumably less than the parent's rate. If you hire a family member younger than 18, their salary is exempt from Social Security tax, provided your business is not incorporated.
IRAs are family-friendly
Contributing to an Individual Retirement Account (IRA) is a viable alternative if your business does not presently offer a qualified retirement plan. The biggest benefits of IRAs are tax-deferral of income, and potentially tax deductible contributions (depending on the type of IRA). For staff members under 50, contributions are limited to $5,500 (2013 figure) and subject to certain income limits. Payments disbursed before 59 and a half could involve a 10% federal income tax penalty, along with the usual taxes on individual earnings. However, there may be certain exceptions to this.
In sickness and in health
As members of staff, your family may be entitled to other profit-sharing plans your firm elects to provide, such as health and accident coverage, disability insurance, and group term life insurance. The normal rate for offering these plans may additionally be tax-deductible.
You should understand that workers who are family must essentially perform as an employee, and get paid a salary not beyond the usual rate for the kind of duties performed. Furthermore, be informed that the tax specifics of any retirement account (there are a number of types), are regulated by laws that apply to both business owners and workers. So, there are clear advantages to having your children as part of staff.
Good news-present and future
Let's say you have a baby daughter, Laura. If Dina, your wife, is employed in your business, the cost of paying for child care while she holds the job could be reduced by the allowable child care tax credit. Also, you could set up a qualified retirement plan to assist in paying for your spouse's retirement, and possibly help fund your daughter's retirement. It's always best to start saving early.
Retirement plan contributions that are made by the company are usually tax deductible. However, there are certain regulations that are imposed by the IRS. So let's suppose that your child is a teenager who is good at bookkeeping. If you pay her according to the going rate for a bookkeeper, and maintain a record of his or her hours, your child's wages can be deducted as a business cost.
If you choose to hire a family member under age 18, their income are free of Social Security tax as long as the firm is not a corporation. If your child's total pay does not exceed the maximum standard deduction of $6,100 (2013 figure), their income is tax-free. Additionally, earnings that are over this number are taxed at the child's tax rate, which is presumably less than the parent's rate. If you hire a family member younger than 18, their salary is exempt from Social Security tax, provided your business is not incorporated.
IRAs are family-friendly
Contributing to an Individual Retirement Account (IRA) is a viable alternative if your business does not presently offer a qualified retirement plan. The biggest benefits of IRAs are tax-deferral of income, and potentially tax deductible contributions (depending on the type of IRA). For staff members under 50, contributions are limited to $5,500 (2013 figure) and subject to certain income limits. Payments disbursed before 59 and a half could involve a 10% federal income tax penalty, along with the usual taxes on individual earnings. However, there may be certain exceptions to this.
In sickness and in health
As members of staff, your family may be entitled to other profit-sharing plans your firm elects to provide, such as health and accident coverage, disability insurance, and group term life insurance. The normal rate for offering these plans may additionally be tax-deductible.
You should understand that workers who are family must essentially perform as an employee, and get paid a salary not beyond the usual rate for the kind of duties performed. Furthermore, be informed that the tax specifics of any retirement account (there are a number of types), are regulated by laws that apply to both business owners and workers. So, there are clear advantages to having your children as part of staff.
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