ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Minimize Your Family's Taxes

Updated on February 17, 2013

Five Tips to Minimize Your Family's Taxes

Parents: Did you know that if you own your own business you can reduce your taxes by hiring your family members?

Most people are aware that they can hire their spouses, but you can also hire your children in your business (within limitations).

There are tax benefits to both hiring your spouse and hiring your children, but this lens will focus on the tax benefits from hiring your children.

If you own your own business, one of the greatest tax saving strategies you have available to you is the ability to hire your children. Here are a few ways that hiring your kids can save you in taxes:

Save Taxes By Hiring Your Kids

1. The wages you pay your children are tax deductible. Any monies paid to your children for legitimate work in your business is a business expense, and thus a tax deduction to you.

2. By paying your children, you are effectively transferring income from your higher tax bracket to your childrens' lower tax bracket. This is a great way to reduce your family's total tax liability.

3. Business expenses, including wages paid to your children, reduce your self employment income. By reducing your business income, you reduce both your self employment tax and your income tax.

4. Your kids may not owe any tax on the amount you pay them, depending on how much they earn and whether you claim them as a dependent or not (in 2009, dependent children can earn up to $5,450 before they will owe any income tax)

5. Paying your children a wage allows them to open an IRA or Roth IRA, which gives them a jump start on saving for retirement, college and other goals.

Got Entrepreneurial Kids: Hire Them!

If you have entrepreneurial kids, consider starting the business in your name and hiring your children instead of having the kids own the business. This will reduce your family's overall tax burden.

Why would it matter who owns the business? Well, if you are self employed, you have to pay self employment tax on your net earning over $400. This rule applies to both adults and children, so there is no advantage to being a kid when you're self employed.

However, kids have a huge advantage if they earn wages paid from an employer. Why? Well, kids don't have to pay taxes on the first $5,450 of earned income, even if they are claimed as a dependent on their parents' tax return.

kids making money
kids making money

Kids Making Money: Business Ideas for Kids

How do kids make money when they're not old enough to get a job?

Actually, the number of ways for kids to earn money has grown tremendously with the growth of the Internet, but some of the old fashioned ways still work as well. Here are some old fashioned, but still great ways your kids can earn money:

Mowing lawns, shoveling snow, raking leaves - it's much cheaper to hire a kid than an expensive lawn service, so this method of earning money will always be around

Dog walking, and pet sitting - we live in such a busy society that our pets get left at home for long time periods, so this is a great way for kids to earn extra money and for Fido to get the exercise and companionship he needs

Continue reading 'Kids Making Money'...

Here's An Example:

Let's assume Teddy, how is 14 years old, has a web design business. In 2009, he expects to earn $5,000 from this business after all of his expenses.

As the owner and a self employed business person, Teddy will have to pay 15.3% in self employment taxes on this income. Assuming this is his only income, he won't owe any federal income tax because his total earnings are less than the standard deduction amount ($5,700 in 2009), but he will still have to pay self employment tax on the net profit. Teddy's total tax in this example will be $765.

Now let's assume that Teddy's dad is the owner of the business and he hires Teddy to do the work. Teddy still earns $5,000, but he is his dad's employee instead of being self employed, therefore he doesn't have to pay self employment tax. Teddy's dad will report the $5,000 in income on his tax return, but he gets to deduct the $5,000 he pays Teddy to work in the business, so dad won't owe any tax on this income. Also, because Teddy is under 18 and works in his father's business, Teddy's dad doesn't have to pay payroll taxes on him. Finally, because Teddy earned less than the standard deduction, his total tax liability will be zero.

In this example, the family's total tax savings by having the business in the father's name and having the child as an employee instead of the owner is $765.

Recommended Tax Software - Make Tax Time Less Taxing!

Children And Taxes

For most kids, the last thing they are thinking about when they get a job or start a business is whether they will need to file a tax return or owe taxes on the income they earn.

Most kids won't even make enough to file, but some children will be required to file a return based on the amount and type of income they earn.

The rules for children and taxes can sometimes be different than those for adults, so how do you know if your child is required to report their income?

Continue reading 'Children and Taxes: Is Your Child Required To File a Tax Return?'

Want MORE Great Tax Tips? - Check out the resources below or use the search box to find your own!

Disclaimer

Any tax advice contained in this message is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law. It is strongly recommended that you get additional help from a (paid) tax professional who is familiar with your unique circumstances. In other words, don't take take advice from a Squidoo lens, or forum, or blog...

Got Questions About Kids & Taxes? Ask Them Here!

    0 of 8192 characters used
    Post Comment

    • Judy Goldsberry profile image

      Judy Goldsberry 

      7 years ago

      Good info. thanks.

    working

    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, hubpages.com uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at: https://hubpages.com/privacy-policy#gdpr

    Show Details
    Necessary
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the googleapis.com or gstatic.com domains, for performance and efficiency reasons. (Privacy Policy)
    Features
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Marketing
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Statistics
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)