A way of reducing your tax bill with the child tax deduction law, is by hiring your own children. If your child is a minor between the age of 7 to 17, hiring them will not only make them smarter, but can also saves you an important amount of tax money!
Generally, each child should have a standard deduction of $4,570; also, children don’t have to pay the first $4,570 in income. However, a child whom you hire in your business will be paid the amount, which will then be deducted from your business accounts. Either you or the child can spent the amount, and, what is best is that you save taxes of about $1,425 (if you are within the tax bracket of 30%).
Also, it is interesting to notice that you will be cleared from paying social security tax on the salary that you pay your child if he or she is minor and if you pay them back out of an only proprietorship or partnership. Your social security taxes will be lifted if the wages come from a corporation.
Some forms will need to be filled in though before you can benefit from this right. The 941 form for example, will need to be submitted four times a year. The 941 form is a form used in order to withhold finances which are generated by an employee. There will be no withholding for a child, however. Also, at the end of the year, you will need to issue a W-2.
It is legal to hire your children as employees when they are 7 years of age, as long as their work is within their abilities. You should record the amount of hours and the type of assignments given to your child on an excel sheet. If the pay and the work given to the child are fair, you will be able to benefit from the deduction.
Your child’s salary should go into your bank account and not into their savings, and the money should be spent only with your acceptance for the needed clothes, education, toys, etc.
One final point; it is of utmost importance that you keep track that your children do not pay for more than 49% of their costs. Therefore, you will always need to keep a good record of their total expenditure. Unfortunately, if they cross 50%, then you will end up losing the itemized deduction on your personal return.
Elliott Dawson is a contributing editor at DebtFinanceArticles.com. This article may be reproduced provided that its complete content, links and author byline are kept intact and unchanged. No additional links permitted. Hyperlinks and/or URLs must remain both human clickable and search engine spiderable.