Although the new Congress may decide to eliminate the Child Tax Credit when it reevaluates the Bush tax cuts, Mark Kohler suggests that the tax benefits that small business owners can reap from their children do not have to stop. He encourages business owners to put their children who are under 18 years old on the business' payroll. It is an under utilized tax strategy that can reduce tax liablity and provide other benefits to young adults, such as teaching them work ethic and business skills, while at the same time saving their parents money. Kohler explains that because of the way that the IRS distinguishes between sole proprietorships or partnerships and corporations, different businesses must structure the payments to their children differently, but regardless of the type of structure, doing so can save thousands of dollars in taxes, and can bring a family closer together. This strategy only lasts until children are 18, so putting them on the payroll sooner rather than later will provide the most benefits.
- Summary by FizzLaw Team
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“Children: Your Most Valuable Employees AND Tax Write-Off”