Black women are the fastest-growing entrepreneurs in the nation, starting businesses at six times the national average, according to “2015 State of Women-Owned Businesses Report.” Yet, many moms are leaving thousands of dollars on the table by missing this simple tax strategy. Here are the top five reasons why busy moms should hire their children.
Amazing Tax Savings for Your Business. Historically, the American tax code has always rewarded American business owners. In 2017, your children don’t pay federal income taxes on the first $6,300 of income (i.e., wages) this year. This is called the Standard Deduction. Plus, you can still claim your children on your tax return as a dependent and even qualify for the Child Tax Credit. Um, Awesome!
Lowered Tax Bracket Benefit for You. Hiring your children often moves you into a lower tax bracket. See, each dollar deducted will decrease your personal income tax. That means you can enjoy major tax savings because your children are in a lower bracket than you. If your business is in the 33 percent bracket, you save $33 for every $100 paid to them as hourly wages. Yep, that’s smart!
Can You Say FREE Money? As stated in IRS Section 501, a dependent child only needs to file a tax return if they make over $6,300 in earned income and/or over $1,050 in unearned income. That means that the first $6,300 in income is free money for your child and your business if you pay them up to this amount. Children under 18 are also exempt from Social Security and Medicare (FICA) taxes, which is called free money, honey.
Provide them with real business skills. Kids are naturally tech-savvy and practically born with the internet in their hands — almost literally. They adapt to technology, like smartphones, tablets and computers programs often faster than we do. Whether they are hired to clean your home office or manage your social media page, make sure you write a job description and keep timesheets for real accountability. Yes, ma’am.
Make them money conscious early. It’s never too early to create smart money habits. By hiring your children to work for you, you are creating both financial literacy and real work experiences which will empower them strategically in the future. As stated by Dr. Boyce Watkins, “Children who are trained on financial literacy and wealth-building are the ones who will control the future.” That creates a major opportunity to create a generational wealth mindset – a win/win for everyone involved.
Bonus: After you hire your children, think about hiring your parents for many of the same reasons. The rules are different for this age group — 65 and older have different tax rules — but it’s still the same strategic money-saving concepts as well. Ultimately, this means less taxes due for you and another stream of income for them. This can be life-changing when done correctly.
Important note: Tax laws are subject to change. Always talk with your tax professional for the most up-to-date tax information.
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PS: Want to discover how to create a full-time income online WITHOUT selling, recruiting, or home parties (so you can spend more time with your kids)? If YES, you should click here.