Simplify Paying Your Kids: Sole Proprietorship vs. S Corporation Insights - Palma Financial

Balancing family and business is no small feat, especially when considering how best to integrate our young ones into the business landscape. When you have both a Sole Proprietorship and an S Corporation, maximizing benefits while ensuring compliance is crucial.

Key Insights:

1. Sole Proprietorship

  • Parent’s Advantage: You and the business are one. This structure lets you pay your children without mandatory payroll tax withholdings (FICA). Translation? You can offer them tax-free earnings up to a set limit.

2. S Corporation

  • The Catch: The business is distinct from you, and you’re viewed as an employee. So, compensating your children means standard payroll taxes apply.
  • Silver Lining:If you are keen on harnessing tax-free benefits within an S Corporation, we’ve got a workaround for you – Establish a family management company under Sole Proprietorship. This company aids your S Corporation operations and manages your children’s roles. With this, you can charge management fees to the S Corporation and compensate your kids without the regular payroll taxes.

Your Path Forward…

  1. Paying through the Sole Proprietorship is a parent’s best friend for simplicity and tax savings.
  2. Eager to tap into tax advantages within an S Corporation? The family management setup is your go-to.
  3. Feel overwhelmed? Let’s simplify together. Schedule a one-on-one with us. Click here, reply to this email, or ring us at (850) 829-3733.