When you run your own business and have kids, you may start to wonder about whether it’s tax-smart to hire your teenager or not. While giving your teenager a job is a wonderful way to teach them good work ethics and responsibilities, it can also be a financially rewarding option for you by providing tax benefits.
Today I’m going to focus on why it’s tax-smart to hire your teenager so that you can see the true beauty behind hiring your teenager to work for your business.
Top 4 Tax Benefits of Hiring Your Teenager
Tax Write Off
There’s a limit to how much you can write off as income paid to your teenager, the key is to research the current tax laws. In 2018 you could pay your teenager up to $12,000 when you’re a sole proprietor or LLC. This tax write off does not apply to corporations, but if you’re an LLC or working under a sole proprietorship then you’ll reap the rewards of this tax write off.
Saves You Time
If you’re looking to free up some time to calculate out income versus expenses in the business or simply need more time to make more money, hiring your teenager can free up that time. When you have more free time to focus on the income level of your business, you’re better able to reduce your tax costs at the end of the year because you can use this time to keep accurate records.
Kids Income is Exempt
Your kid’s income, when hired as a legitimate employee, isn’t eligible for taxes as long as they’re earning $12,000 or less, as of 2018 tax laws. This means that your kid can create the tax write off for your business and still be a dependent on your tax return because they won’t be claiming this income nor having to pay in for taxes at the end of the year.
Create a Retirement or College Fund
Lastly, you can use the income, or some portion of it, that you were going to pay your teenager as a college or retirement fund. These funds can be placed into a Roth IRA or Standard IRA so that the funds don’t work against income tax season and you’ll be saving towards your teenager’s future at the same time.
Be sure you review all of your tax laws in your local state pertaining to the tax benefits of hiring your teenager. Some states may have different laws that vary from the information shared in this blog post, and tax laws do change from year to year.
This information is meant to be a resource to look into the tax benefits of hiring your teenager a bit further before you remove the idea of hiring your teenager to work for you.