Monday, June 4, 2018

The New Tax Law Could Make Hiring Your Kid a Very Smart Tax Move

From Bill Bischoff at Market Watch:
Say you operate your business as a sole proprietorship, as a single-member LLC that is treated as a sole proprietorship for tax purposes, as a husband-wife partnership, or as an LLC that is treated as a husband-wife partnership. Great! That means you can hire your under-age-18 child (as a legitimate employee) and his or her wages will be exempt from
Social Security tax, Medicare tax, and federal unemployment (FUTA) tax. In fact, the FUTA tax exemption lasts until your employee-child reaches age 21. You can hire your child part-time, full-time, or whatever works for you and the kid.

Thanks to the Tax Cuts and Jobs Act (TCJA), your employee-child can use his or her standard deduction to shelter up to $12,000 of 2018 wages paid by your business from the federal income tax. For 2017, the standard deduction was only $6,350, but the TCJA nearly doubled it. So under the new law, your child can shelter almost twice as much wage income with the increased standard deduction. That makes hiring your kid a better idea than ever.

Bottom Line: For 2018, your child will owe nothing to the Feds on the first $12,000 of wages, unless the kid has income from other sources....

What if you operate your business as a corporation? In that case, your child’s wages are subject to Social Security, Medicare, and FUTA taxes just like for any other employee.


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