“Ask Your Attorney” Column

About Whether You Can Save On Taxes By Hiring Your Kids!

Dear Counselor: I have a business and wondered if hiring your kids is a good idea from a tax standpoint.

Dear Client: It is all a numbers game, but three tax incentives for hiring your children come immediately to mind. For example, let’s say that you are in a 40% tax bracket, including federal, state and any local income tax. If you pay $3,200.00 in wages to your son, and deduct them as a business expense, you will save $1,280.00 on income taxes, while your child (assuming he has no other income to speak of) will owe no income tax. (This is because your son’s income is sheltered by his standard deduction.) You can still claim your son as a dependent as long as he is under 19, or is a full time student under the age of 24 for at least 5 months per year, and you furnish more than half the total support for your son. And if your business is a sole proprietorship, single-member LLC or a husband-wife partnership, and your son is under age 18, the taxpayer will be excused from paying social security, medicare, and federal unemployment tax. So, go ahead and do your own calculation. You might find it makes all the sense in the world tax wise to make that next employee your kid!

John L. Maier, Jr.

Sweet & Maier, S.C., Attorneys
114 N. Church St.
Elkhorn, WI 53121