1. Tax Deduction for Your CompanyThe most obvious reason to hire your children is to have their salary as a tax deduction. The reason businesses get so many tax breaks is because the government understands the economic value of creating jobs. And by creating a job, your company gets rewarded with tax breaks.
2. Tax Bracket Benefit for YouAnother great reason to hire your children is the potential tax bracket benefit. Every dollar you deduct comes off of your highest tax bracket.
Since most entrepreneurs use a flow-through entity, such as a partnership or S corporation for their business, every dollar of deduction actually reduces your personal income tax. So if you are in a 33 percent bracket, the salary you pay your child reduces your tax by $33 for every $100 you pay them.
3. Free IncomeAccording to IRS Publication 501, a dependent only needs to file a tax return if they make over $12,550 in earned income and/or over $1,100 in unearned income (page 4, Table 2. 2021 Filing Requirements for Dependents). What this rule means is that up to $12,550 in income is free money for the child and your business if you pay them up to this amount.
4. Increase Skills for Your ChildrenYour family will also thank you for increasing your children’s job skills by hiring them. Consider hiring your son or daughter to do social media marketing, web design, accounts receivable, administrative work or even sales, which are all great job skills to include on a resume. You also want to write a job description, and make the job real with accountability.
5. Your Children Can Start Getting a Real Financial EducationOne of the biggest benefits of paying your children is that they can get a real financial education. You can teach them to use the extra income to cover some of their own personal expenses and/or invest in assets.
This experience can educate them on the difference between acquiring assets that pay you versus liabilities that you owe. The earlier you can teach your children about managing money, the sooner you see relief in your monthly expenses.
After you hire your children, consider hiring your elderly parents for many of the same reasons. The rules are different for this age group—65 and older have different tax rules—but it’s the same concept of increasing your business deductions, reducing your tax bracket and providing them with money for their expenses. And of course, you’ll be the family hero again.
The Epoch Times Copyright © 2022 The views and opinions expressed are only those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.