BY THE NUMBERS I f you’re a business owner and you hire your children this summer, you can obtain tax breaks and other nontax benefits. The kids can gain on-the-job experience, save for college and learn how to manage money. And you may be able to: • Shift some of your high-taxed income into tax-free or low‑taxed income, and • Realize payroll tax savings (depending on the child’s age and how your business is organized). Plus, you can spend more time with your kids. A Legitimate Job If you hire your child, you get a business tax deduction for employee wage expenses. In turn, the deduction reduces your federal income tax bill, your self-employment tax bill (if applicable), and your state income tax bill (if applicable). However, for your business to deduct the wages as a business expense, the work performed by the child must be legitimate and the child’s pay must be reasonable. Let’s say you operate as a sole proprietor and you’re in the 37% tax bracket. You hire your 16-year-old daughter to help with office work on a full-time basis during the summer and parttime into the fall. Your daughter earns $10,000 during 2022 and doesn’t have any other earnings. You save $3,700 (37% of $10,000) in income taxes at no income tax cost to your daughter. She can use her standard deduction of $12,950 for 2022 to completely shelter her earnings. Your family’s taxes are cut even if your daughter’s earnings exceed her standard deduction. Why? The unsheltered earnings will be taxed to your daughter beginning at a rate of 10%, instead of being taxed at your higher rate. Hiring Your Minor Children for Summer Jobs By TETRICK & BARTLETT, PLLC wvcar.com 18
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