(MENAFN- ValueWalk) If you have a business and kids, hiring your kids could earn you tax benefits, provided you follow all the rules. The tax breaks by hiring your kids will allow you to write off their wages as business expenses, as well as set up tax-free retirement accounts for the kids. The tax breaks are available even if your kid is a minor.
Tax breaks by hiring your kids – what you need to know
With schools closed for summer holidays, thousands of young people head to the labor market to earn some money. According to data from the Bureau of Labor Statistics, 55% of young people (ages 16 to 24) were employed during the 2023 school break.
A similar number of young people are also expected to hit the labor market this year. If your kid or kids are expected to be one of them, you can hire them to receive some extra tax breaks.
However, before you hire your kids to get tax breaks, you need to be aware of the state and federal labor laws and tax rules.
Mainly, your state's labor codes will apply to hiring younger employees. Many states don't allow young people under 14 years to join the workforce. Also, the job your child will perform must meet legitimate business needs and their salary must be reasonable. The child must be registered on the same books as other staff.
Different states, however, have different labor rules. It would be better that you talk to a local financial expert before you execute the plan to receive tax breaks by hiring your kids.
What benefits can you and your child score?
In 2024, the federal standard deduction for single filers is $14,600. So, your kids' summer job – lasting only two or three months – is unlikely to exceed the standard deduction limit. This means your child won't owe any income taxes.
On the other hand, the wages you pay the kids can be deducted as a business expense, resulting in significant savings for your business. Another benefit is that wages paid to a child who is below 18 years old are not subject to Social Security and Medicare taxes. Payment for the services of a child below 21 years isn't subject to the Federal Unemployment Act (FUTA) tax as well.
It must be noted that some benefits might differ depending on whether the business is a sole proprietorship, corporation, partnership or estate. Visit the IRS web page for information on tax breaks by hiring your kids.
Hiring your kid will allow you to open a Roth individual retirement account (IRA) for them. This means young people can start to save for retirement early in life. To magnify their savings, you can also match up to $7,000 annually to their Roth IRA.
Besides the tax breaks by hiring your kids, the biggest benefit you will get is the opportunity to spend more time with your kids. So, don't miss this opportunity to score financial and personal benefits.
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