Can your children help out with some of the tasks connected with your business? Then a savvy way to take care of their allowances or spending money – at the expense of the IRS – is to pay them wages for work they do on behalf of the business. This is a perfectly legal way to keep income in the family while shifting some out of your higher bracket and into their lower bracket.
For this business expense to withstand IRS scrutiny, your children must actually render services. Also, wages paid to them can’t be more than the going rate for unrelated employees who perform comparable tasks.
The IRS doesn’t require you to be a parsimonious paymaster who doles out only the minimum wage. But you must treat your children the same as any other employee and keep the usual records showing amounts paid and hours worked.
Give them W-2 forms, even if they qualify to exempt their wages from withholding for income taxes, and use checks drawn on business accounts to evidence the payments. Otherwise, the IRS might contend that the payments exceeded the going rate or that your youngsters weren’t bona-fide employees; they merely rendered the token kinds of services that parents expect their children to perform.
For more information contact Neikirk, Mahoney and Smith at 502-896-2999.
Courtesy of AccountingWeb
Really, you have some great tips here. Thanks for sharing. Jarl Moe
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