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Paying kids in family business.
Posted on 9/29/23 at 10:37 am
Posted on 9/29/23 at 10:37 am
Anybody familiar with paying their kids a salary to reduce taxable income in a family business?
I am mainly looking to offset the the income I get from online sales on ebay and whatnot. Those 1099s are issued to me personally, and i operate on those platforms as sole proprietorship. Sales are about $50 to $70 grand, and profit margins are high, about 50%.
Am I correct in understanding if I pay my kids salaries on income from a sole proprietorship there is no required payroll tax? What about federal and state unemployment?
ETA my main business is set up as an LLC which pays me a salary. Does that impact what I am able to do with the sole proprietorship?
I am mainly looking to offset the the income I get from online sales on ebay and whatnot. Those 1099s are issued to me personally, and i operate on those platforms as sole proprietorship. Sales are about $50 to $70 grand, and profit margins are high, about 50%.
Am I correct in understanding if I pay my kids salaries on income from a sole proprietorship there is no required payroll tax? What about federal and state unemployment?
ETA my main business is set up as an LLC which pays me a salary. Does that impact what I am able to do with the sole proprietorship?
This post was edited on 9/29/23 at 10:39 am
10
Posted on 9/29/23 at 10:58 am to BlackAdam
Not an expert AT All but paying them a salary as an employee likely means payroll tax. Paying them as a 1099 contractor would avoid that HOWEVER do they pass the IRS test as a 1099 Contractor?
Just some thoughts and looking forward to reading more informed responses. IRS 1099 Contractor rules
Just some thoughts and looking forward to reading more informed responses. IRS 1099 Contractor rules
Posted on 9/29/23 at 11:01 am to agilitydawg
quote:
Not an expert AT All but paying them a salary as an employee likely means payroll tax.
From the IRS
quote:
Children employed by their parents
If the business is a parent’s sole proprietorship or a partnership in which each partner is a parent of the child:
Payments for the services of a child are subject to income tax withholding regardless of age.
Payments for the services of a child under age 18 are not subject to social security and Medicare taxes. If the child is 18 years or older, then payments for the services of a child are subject to social security and Medicare taxes.
Payments for the services of a child under age 21 are not subject to Federal Unemployment Act (FUTA) tax. If the child is 21 years or older, then payments for the services of a child are subject to FUTA taxes.
But if I am paying them less than the standard deduction do I even need to withhold and remit?
Posted on 9/29/23 at 1:02 pm to BlackAdam
You nailed it bro, the IRS won't have any issue at all with you paying your kid $35,000 so you don't have any taxes. Just do a quickbooks payroll and poof you are tax free! 
Posted on 9/29/23 at 1:32 pm to BlackAdam
I’ve seen the videos suggesting this.
They are based on some truth but not completely factual which is the issue with getting tik tok advice on taxes (or to go further getting tax advice from this board).
The major part being left out in all those videos and what you’re talking about is your kid has to do legitimate work to earn that salary. One video I saw said you could do it for a new born infant which is just an absurd lie. Zero chance the IRS looks at that and approves it. That’s the kind of advice that gets people stuck with tax fraud charges.
If you’re running a eBay business, what kind of role are you going to carve out for your kid to justify the salary? If you’re just flipping junk on eBay, I really doubt the IRS is going to go for your kid being an employee.
They are based on some truth but not completely factual which is the issue with getting tik tok advice on taxes (or to go further getting tax advice from this board).
The major part being left out in all those videos and what you’re talking about is your kid has to do legitimate work to earn that salary. One video I saw said you could do it for a new born infant which is just an absurd lie. Zero chance the IRS looks at that and approves it. That’s the kind of advice that gets people stuck with tax fraud charges.
If you’re running a eBay business, what kind of role are you going to carve out for your kid to justify the salary? If you’re just flipping junk on eBay, I really doubt the IRS is going to go for your kid being an employee.
Posted on 9/29/23 at 2:06 pm to Weagle25
I think the ages are 7-22. You can pay up to 12K a year and also contribute 6K to an IRA per child.
I'm discussing it with my accountant on how to get it set up.
kieth jones CPA
This is not my accountant BTW.
I'm discussing it with my accountant on how to get it set up.
kieth jones CPA
This is not my accountant BTW.
Posted on 9/29/23 at 2:33 pm to BlackAdam
Put them on the board, as the Big Guy you are entitled to 10%.
Posted on 9/29/23 at 2:41 pm to baldona
quote:
You nailed it bro, the IRS won't have any issue at all with you paying your kid $35,000 so you don't have any taxes. Just do a quickbooks payroll and poof you are tax free!
He said less than the standard deduction. That's well below $35k.
Posted on 9/29/23 at 2:43 pm to Weagle25
quote:
They are based on some truth but not completely factual which is the issue with getting tik tok advice on taxes (or to go further getting tax advice from this board).
At least on this board people can show their work and link to primary sauces.
Posted on 9/29/23 at 3:19 pm to BlackAdam
quote:
Anybody familiar with paying their kids a salary to reduce taxable income in a family business?
Wrong board
Posted on 9/29/23 at 3:56 pm to XenScott
quote:
think the ages are 7-22. You can pay up to 12K a year and also contribute 6K to an IRA per child.
I'm discussing it with my accountant on how to get it set up.
My financial advisor told me to go this route. Contribute 6 grand to their IRA/year. I meet with my accountant next week to make sure that this is allowed.
Posted on 9/29/23 at 4:08 pm to Weagle25
quote:
If you’re running a eBay business, what kind of role are you going to carve out for your kid to justify the salary? If you’re just flipping junk on eBay, I really doubt the IRS is going to go for your kid being an employee
They all do legitimate work. My daughter does all the videos, pictures, and and editing for my instagram and whatnot. My oldest son does photos and lists items on ebay. My younger son packs items and orders shipping supplies when low. They all help manage inventory and remove listings from one platform when an items sells on another. I have just been giving them cash as if they are doing chores, but if i could get some tax avoidance out of it I surely would.
Posted on 9/29/23 at 4:14 pm to baldona
quote:
You nailed it bro, the IRS won't have any issue at all with you paying your kid $35,000 so you don't have any taxes. Just do a quickbooks payroll and poof you are tax free!
The standard deduction is $13850 for an individual.
Posted on 9/29/23 at 4:31 pm to BlackAdam
It has to be tangible and realistic work.
You cannot pay them a ridiculous amount of money.
If they can sort things into boxes or some other simple item of work, that is fine.
Simple cleaning and organizing that is age appropriate.
You can use them as models in ads or printed material.
You cannot pay them a ridiculous amount of money.
If they can sort things into boxes or some other simple item of work, that is fine.
Simple cleaning and organizing that is age appropriate.
You can use them as models in ads or printed material.
Posted on 9/29/23 at 8:26 pm to BlackAdam
If I had a business and a kid, I would figure out how to legit put them on the payroll, pay all required taxes, and put their income (to the contribution limit) in a Roth IRA in an index fund in their name.
A few years of $6,500 or so a year in S&P 500 index in the teen years could set them up VERY nicely when they are towards retirement age (if they have the sense to let it ride).
A few years of $6,500 or so a year in S&P 500 index in the teen years could set them up VERY nicely when they are towards retirement age (if they have the sense to let it ride).
Posted on 9/30/23 at 10:15 am to BlackAdam
Pay them ~12k as a W2. No payroll taxes. Put half in a Roth IRA.
You’ll be fine.
You’ll be fine.
Posted on 9/30/23 at 11:30 am to BlackAdam
quote:
They all do legitimate work.
Then just make sure you document everything.
Have something that describes their roles and track their hours. Will help you out if you get audited
Posted on 9/30/23 at 11:37 am to TigerMan327
quote:
Pay them ~12k as a W2. No payroll taxes. Put half in a Roth IRA.
I’d be careful paying them the exact amount that’s tax free. With all grey area things , you want as many facts in your favor that you can get.
If you pay every kid exactly $12k, looks like you’re purely doing it for tax reasons. If you pay a kid a certain amount per hour and let it fall out where it may, seems a lot more legitimate.
Posted on 10/2/23 at 3:33 pm to Weagle25
Yeah. My accountant is not fond of the idea. I may need a new accountant. He says it’s legal but will draw an audit. I said that’s what I pay you for so if I get audited I’m good.
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