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How to Give Your Teen a Summer Job and Write It Off

Giving Your Teen a Summer Job: Tax Advantages for Self-Employed ParentsFor self-employed parents, giving your teenager a summer job is a win-win for everybody. They get some experience, and you get cheap labor.

With job opportunities for inexperienced youngsters still looking bleak, you may be their best chance at putting something tangible on their resume.

Best of all, it’s a tax write-off for your business.

Tax Advantages

If you’re a sole proprietor or small partnership, the most lucrative tax advantages of hiring a child under the age of 18 include:

  • Nobody has to pay social security or Medicare taxes
  • You can pay your teen up to $5,950 in wages for the year and still claim them as a dependent
  • You may not have to cover them under workers’ compensation (check your state’s laws first)
  • The wages are exempt from unemployment taxes
  • Earned income is not subject to the “kiddie tax”

If you really want to get savvy with your child’s finances, you can put $5,000 of their earnings into a tax-deductible IRA and be able to pay them as much as $10,950 tax-free. This gives them a sound start on financial investing and you get to give them more work experience.

Click here for more information on helping your child start an IRA.

But, Before You Get TOO Excited…

Like everything with taxes, there are some hoops to jump through to do this:

  1. Your child must actually work (OMG, the horror!)
  2. The wages you pay them must be reasonable
  3. If you get audited, you’ll need records to substantiate the deduction (payroll records, time sheets, etc.)

Have a Corp?  Of Course, That Means Extra Work For You

If your business is bigger, has upwards of 50+ employees or is structured as something other than a sole proprietorship or LLC, then the rules are completely different. For example, corporations have to pay payroll taxes on kids, even if they’re under 18.

Of course, I wouldn’t recommend hiring your children without speaking to your CPA first. An ounce of prevention is worth a pound of cure.

There are legally creative and legitimate ways to hire your kids if you have a bigger business, but each situation is unique and requires some planning. Often it entails creating a “family management company” under the umbrella of your S or C-Corp, but even those must be valid businesses serving an actual financial purpose. Unfortunately, you can’t just create an entity so that your teenager can get paid to do their chores and give you a tax break.

If you can make it work, this strategy can save you thousands of dollars in taxes and change the lives of your family.

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