Need tax preparation services? We have some great tips to get you started.
This simple strategy can help your business and improve your household’s disposable cash flow. In addition, you will generate favorable tax results for both the newly employed family member(s) and your business (think double benefit). One smart move could be hiring one or more family members to work in your business.
Hire Your Under-Age-18 Child:
You can take advantage of this strategy if you operate your business:
You can hire your under-age-18 child. The child’s wages will be completely exempt from Social Security and Medicare taxes (FICA tax) and FUTA taxes.
The FICA tax exemption applies to the employee’s share of the FICA tax withheld from the employee’s paychecks and the employer’s share of FICA tax that your business must pay over to the Feds.
-For 2021, your under-age-18 child’s standard deduction will shelter the first $12,550 of wages received from federal income tax if the child has no taxable income from other sources. Your child will not pay income taxes.
-You can hire the under-age-18 child part-time, full-time, or whatever works for you and the family.
-The wages received by your child can help keep the family afloat financially. Suppose the family is not so financially stressed. In that case, your child can use some or all of the wages to fund a college savings account or make a Roth I.R.A. contribution.
-Suppose you operate your business as an S or a C corporation. In that case, your child’s wages are subject to Social Security and Medicare taxes (FICA tax) and FUTA tax regardless of the child’s age.
Tax Advantages for Your Business:
When you hire a child or other family member, your business deducts the wages paid. Tax preparation services can ensure a maximum deduction.
-Sole Proprietorship: A single-member L.L.C. is a sole proprietorship for tax purposes, a husband-wife partnership, an L.L.C. is a husband-wife partnership for tax purposes or an S corporation, the wage expense deduction reduces (a) your federal taxable income, (b) your net self-employment income, and (c) your state taxable income (if applicable).
–The wages paid to your under-age-18-year-old child are exempt from the employer’s share of FICA tax. If your employee-child is over age 17 but under age 21, the FICA tax exemption disappears. Still, the wages are exempt from FUTA tax.
-C Corporation: The corporation deducts the wages paid to a child or other family member. The deductions reduce the corporation’s federal taxable income and probably the corporation’s state taxable income (if applicable).
Tax Preparation Services: Contact Us
Let us take care of your tax and accounting needs, so you can concentrate on what you do best running your business!!! Let’s discuss more in a strategy session. Book Your Free Assessment Here.