How to Hire My Kids in an S Corp

[@NormanLee-g4x]

This is the best explained video I have seen on KZbin! Thanks!

[@JamieTrull]

This is the kindest comment I have seen on KZbin hah! Thank you so much for commenting, it means a lot!

[@lydiapatelll]

Thanks so much for this video, very well explained! The KZbin example really applied to me, so glad I found your content.

[@JamieTrull]

Yay! So glad to help!

[@nandishmehta]

Hi Jamie, Thank you for an awesome explanation. You forgot to include the accountant charges and Quickbook subscriptions (self-book keeping), which might make the option-C more of an headache and reduce benefits from tax savings.

[@JamieTrull]

Typically there is no need for Quickbooks for an FMC since you are more passing through costs. Also, the Schedule C tax form is super simple so shouldn't cost much, if anything, depending on how you do your taxes. That said, I do recommend having payroll which is a cost. Overall, all tax strategies have a cost/benefit associated with them that should be considered - it's certainly not one-size-fits all!

[@lgiovia]

I have been searching for videos on the subject and this video is the very best by far. You answered so many questions. Thank you

[@JamieTrull]

Glad it was helpful!

[@TheDosuFamily]

Very detailed explanation. Thank

[@JamieTrull]

you're welcome!

[@gabechotzen7832]

great video, incredibly helpful. I'm wondering if you have the family management company file quarterly 941s and year end W2s to you kids?

[@JamieTrull]

Glad you found it helpful! And yes, I use a payroll company for the FMC and they file the quarterly 941s and W-2s. I do think its best practice and great documentation even when you aren't having to withhold tax!

[@liubyvega1558]

Great video, thank you for sharing such valuable information. I am exactly in this situation and your video has been a godsend :)

[@JamieTrull]

So glad you found it helpful!

[@ChristopherCarmona-s1g]

Option 3 may be zero dollars for Jame, but it's not for anyone who is not an accountant. You'll have the fees from creating a separate bank account $10/month , running bi-weekly or monthly payroll $40-$80 per check with ADP or Paychex, an additional Schedule C on the tax return $300, and the time to bill and explain and correct the client's bookkeeping for the Management Company and the S-Corp (even though simple will run hourly so figure another $1,000). In this example, doing this for one child is not really worth setting up the Family Management Company. Once you have 2 kids on the payroll the economies of scale make it more worth while. Don't forget to factor in your time. At least $30 an hour. Are you going to spend 10 hours a year doing this yourself? Figure another $300 in your time.

[@JamieTrull]

It’s not zero dollars, but I do pay out ways to do it very low cost in the toolkit. Payroll can be done for under $30 a month, and you shouldn’t pay $300 for a Schedule C showing two line items that net to zero (I include an example in the toolkit). Like any other tax strategy, you do the math to see if it makes sense for your situation, and invest if it does. It can for sure be worth it as well if you are using that earned income to contribute to a Roth IRA for them, which allows compound interest to start extremely early and will make any investment WELL worth it in the long run. I do believe that people can do this on their own with the right tools, and there is no needs to pay thousands for an accountant to set this up and maintain if you are willing to invest in understanding it yourself. It’s why I make tools like this to simplify the process and take out the guesswork.

[@MichelleTaylor74]

Can we pay grandkids? My tax person said put them on my payroll. Is that correct? Will I have to get an EIN with the LLC management group? Also Will I have to file taxes on the LLC?

[@JamieTrull]

Great question. I would love to answer this for you on my next live show. You can submit your question here: www.JamieTrull.com/KZbin

[@joelnelson1682]

Thanks! Would your family management co not have an added expense for opening a corp and filing taxes?

[@JamieTrull]

you can set it up as a sole proprietorship, so no Corp filing fees. For taxes, it would just be a Schedule C included in your personal tax return, and it will usually zero out if you do it correctly (i.e. no profit to recognize). I show you how to fill out the Schedule C super easily in the Toolkit! The main added expense would be a payroll solution, but that's generally pretty nominal.

[@wavynomad]

I feel like there is a substance over form argument here if thr SOLE employees and SOLE purpose of that entity is to shift income to the children 9:41

[@JamieTrull]

The purpose of the entity is to manage your kids by tracking their hours worked, paying them. etc. It's a pretty common strategy. It can be helpful operationally too for business owners with more than one business, allowing kids to work for multiple businesses while streamlining how they are paid.

[@TheMrsroy1]

Hello! Thank you so much for this video! I just got my EIN for my management company as a sole prop. My business is an s corp. I wanted to know how to categorize the expense for writing the check to the management company. I don't know if to expense it as management fees or professional fees. Wouldn't it look weird on the S corp tax return to see a big sum of the management fee ( based on how much I paid)? Thank you very much!!

[@JamieTrull]

Thanks for this question, its a bit more complex than I can answer in the comments, but feel free to submit it here for my next KZbin live show: www.JamieTrull.com/KZbin

[@djlyve]

OMG I LOVE YOUUU, SO CONCISE AND PERFECTLY CLEAR. THANK YOU SO MUCH JAMIE.....Cheers from So Cal : )

[@JamieTrull]

You're so welcome! We love hearing that the content has been helpful! If you haven't signed up yet I have a Kids on Payroll Masterclass happening tomorrow we hope to see you at jamietrull.com/masterclass

[@djlyve]

@@JamieTrull just signed up 🙏🏽

[@cylegillman7959]

This is great information. I’m assuming you could add the expenses to the FMC as owners contribution and that the FMC would receive a 1099 from the SCorp, is that correct?

[@JamieTrull]

Yes, the S Corp will 1099 the FMC for the amounts the FMC was paid.

[@jointrendify]

can the family management company pay your kid as a 1099 employee or does it have to be ran through paroll as a w2?

[@JamieTrull]

It is rare that a child would meet the labor requirements to be an independent contractor, and there really isn't a benefit to it if they are under 18 as they are not subject to payroll taxes as a W-2 employee anyway. Children should pretty much always be W-2 employees for that reason.

[@jointrendify]

Thanks@@JamieTrull! My oringial thought was maybe hiring them as an independent contractor serving as a model for social media ads - wanted to avoid payroll costs if I could​

[@FrankMcClung]

What about an LLC that is a two member: one is the parent and one the grandparent. Would SS, and all need to be withheld then?

[@JamieTrull]

Correct, as the other member is not a parent. Unless you used a family management company of course.

[@rkmamidi1]

Amazing video .. is it too late or can I still do it in the next couple of days before the new year if I buy your toolkit

[@JamieTrull]

So sorry for the late response! You can do this up to the end of the year.

[@lili230100]

Hello I just found your video and it help me a lot, I have one question that you didn't explain if hiring your child directly from your s corp isn't the tax for social security and medicare helping them anyways in the lo ng run in their future, asking because I do have a Ira account for my self and the gaings annually are very low really so maybe those taxes are an investment too. Thank you in advance for your answer.

[@JamieTrull]

Overall social security benefits are currently based on calculating your earnings from the highest 35 years of wages. For most, it's unlikely their years as a minor will count as they are likely to make more as they get older. Plus, social security could (and likely will) fundamentally change between now and when your child retires, so I wouldn't count on them seeing those benefits.

[@Orchid2000]

Great video! Does the Family Mgmt Co need to set up a separate bank account to receive the "receivables" for the invoices to the S-Corp?

[@JamieTrull]

Yes it should.

[@kevinbomb]

how does the family managment company pay the child? Issuing a w2 or paycheck without holdings?

[@JamieTrull]

Great question. I would love to answer this for you on my next live show. You can submit your question here: www.JamieTrull.com/KZbin

[@AndrewIrizarry]

So on the IRS website, it asks if I'll be paying them W2. Will they be W2'd with the FMC or will they be contracted by the FMC and get a 1099?

[@JamieTrull]

they would be hired by the FMC as a W-2 employee

[@justinwilliams2144]

So I've been told creating a sole prop or LLC (Management Co) as the sole purpose of getting around payroll taxes (by the S Corp paying the Management Co to pay the kids) is in a very grey area. My CPA said that a business must have an actual purpose, and if the only reason the sole prop or LLC exists is only to pay the kids then if you are ever audited, the IRS is pretty likely to say it's not a valid biz and then we would have to pay back the payroll taxes, penalties, and interest. Any thoughts on this?

[@JamieTrull]

Ultimately the key is to actually follow the rules and go through all the steps required to validly create and operate the FMC. The Family Management Company has to be set up legitimately, have contracts in place, and actually be the company responsible for managing the children, tracking their work, and typically billing the regular company. Management fees are a legit thing and are an extremely common structure in business, and there should be no reason the IRS would have an issue with that if you set everything up and handle it properly. I've never heard of any case law of the IRS clawing back for FMCs that were legitimately created and operated for the purpose of paying family members.

[@tiecoolguy]

Would they be shareholders? Are shareholders really "hired?" I thought they were considered "shareholders?" Is it just an issue of semantics?

[@JamieTrull]

Great question. I would love to answer this for you on my next live show. You can submit your question here: www.JamieTrull.com/KZbin

[@lalalandhomebuyers6961]

Thinking of hiring my kids for vocals in my music production company. Will this new entity be subject to the $800 annual filing fees for California?

[@thetruth3514]

Yes. Inquiry minds would like to know

[@JamieTrull]

Great question, I would love to answer that for you on my next live show! You can submit this question here for me to answer: www.JamieTrull.com/KZbin

[@rchsuccesspartnersllc155]

great video... Do we pay via payroll through the FMC (SMLLC) and bank account to the child, OR just a transfer for payment to child's account as "outside labor"?. Just making sure that I have to run payroll through the FMC or not. Thanks

[@JamieTrull]

They’ll need to be paid by the FMC to get the tax benefits as that is their employer.

[@rchsuccesspartnersllc155]

Thanks.

[@StevenMadrid]

When you pay your kids through the family management company, do you have to use a payroll provider so that a W2 is generated? Since there will be no income taxes or self employment taxes, could you instead just do a traditional bank transfer from the family management company's bank account into your kid's bank account?

[@JamieTrull]

Best practice is to use a payroll company for compliance reasons. It seems silly, but it does help support you are treating them like a real employee. You'll also get a W-2 and the quarterly 941s will get filed. My favorite payroll company for this that is low-cost is Roll by ADP. I have a special rate with them + 3 months free right now. jamietrull.com/rollbyadp

[@QuyenLe-hx3lu]

I'm so glad I stumbled on to your video. I was just thinking about this as I am already paying my child for some office help. I just have one question. I already have a S-Corp and am paying myself a w-2 as an employee. Could I just change the tax type and reclass it back to a single member LLC and add my child as an employee, instead of setting up new one?

[@JamieTrull]

Technically you could revoke your S election, but that may not be the best thing to do if you are getting tax benefits being an S Corp. S Corp can save you money on your own payroll taxes as the owner. I'd definitely consult on your specific situation before making any drastic changes.

[@QuyenLe-hx3lu]

@@JamieTrull Thank you for taking the time to reply to me Jamie.

[@Ryan-Chicago]

Great video! One question…would the child’s income still be subject to state taxes?

[@JamieTrull]

It depends on the state. Many states align with the federal threshold for taxes, however some have lower thresholds that would require collecting and remitting taxes to the state even under the $14,000 threshold. You may also have worker's comp/unemployment for the state - again it is different on a state by state basis and depends on how much you intend to pay them.

[@sonijp]

Can the Family Management Compnay be a DBA? Or does it have to be a LLC? I think starting a LLC is complicated and cost more money than a DBA. Dont you think DBA is better?

[@JamieTrull]

You can do it as a sole prop (i.e. DBA). Just make sure you have everything well documented!

[@ownyourpathforward]

Really great explanation of how to hire your kids when you're an S or C Corp! What about hiring your grandkids? Seems like having a Family Management Company would make sense if that's allowed?

[@JamieTrull]

You are on the exact right wavelength!! I actually have a video coming out next week about hiring other family members, complete with a flow chart!! Stay tuned!

[@ownyourpathforward]

@@JamieTrull Awesome! I look forward to seeing it!

[@TabbyLife8]

Do you have recommendations for great accounting and tax advisor firms that are not big and have fees in line with single owner small business level?

[@JamieTrull]

Yes check out my list of preferred vendors here jamietrull.com/preferred-vendors also I have something AMAZING I am working on to help business owners like you. It should be ready at the end of the year. Keep your eyes out!

[@julianabotero1]

Hi there! love your videos - super helpful content! I own an S-Corp but since I can't think of any reasonable jobs for my son in my business, wondering about getting him hired by my parents (grandparents) through a FMC. My son helps their cleaning business almost every week assembling guests' souvenir bags, organizing and unpacking supplies, etc so could their S-corp business pay me as the mom (FMC sole prop) and I can hire him (W-2) from the FMC? I am assuming at the end of the year, the cleaning business will issue a 1099 to the FMC and I can just list that under the schedule c in my personal filing. let me know your thoughts if I am thinking of this correctly and many thanks!

[@JamieTrull]

You are SPOT ON Juliana! I actually have a video coming out next week specifically about hiring grandkids, but essentially the best course is to have the parents set up an FMC to facilitate this. You are right on track!!

[@julianabotero1]

​@@JamieTrull Thank you!!! Do you have any recommendations on banks for business accounts for FMC? I had opened a bank account for my child with Capital One but I am going to look into Greenlight - the business banking with Capital One has a $15 monthly fee so I would love to avoid that. Also do you use Gusto for the kids payroll?

[@maulikpatel4720]

Hello Jamie, The link to buy your toolkit keeps giving error that the request is expired and please try again or refresh page. that didnt work as well. UPDATE: Credit card payment has issue, Paypal worked.

[@JamieTrull]

So sorry you had trouble with this, but I'm glad it was working! If you wouldn't mind, would you send a detail of which link you were using to [e-mail]? I want to make sure no one else has this issue! Hope you enjoy the Toolkit!!

[@SchoolHabits]

Hi Jamie! I found you through DCA/Momentum, which I'm a part of :) Question for you: I'm currently an LLC and would like to take advantage of this strategy by hiring my 10 and 12 year old. Do you recommend that I stay an LLC to do this, or move to an S or C corp? I am the only employee and I do not plan to hire any others (besides my kids). Thank you!

[@JamieTrull]

It's actually easier to do if you aren't a Corp! Some of the exemptions for SS and Medicare don't apply to a Corporation, however you can get around that for a Corp by opening a family management company. You get to skip that step if you are an LLC without an S election!

[@jonblair5470]

Roth IRA requires earned income. So how do you contribute to a child’s Roth if you use a Family Management Company?

[@JamieTrull]

The family management company is still paying the child, and they’ll receive a W-2 for the work they did. It will just come from the FMC.

[@rchsuccesspartnersllc155]

Do you have a discount code for the kit? ☺

[@JamieTrull]

We don't generally discount this one, but I appreciate the ask ;) It's for sure worth it!

[@DavidParent3044]

LLC’s are $500 a year in my state. Are there any other entities you could set up ?

[@JamieTrull]

You can create your FMC as a sole proprietor as well, which doesn't require state set up.

[@joedavison5210]

Jamie, I have a 2 year old and would like to start to pay my daughter for "modeling" in my business advertisements. CAn I still do this with a 2 year old in my detailing business (S-corp)

[@JamieTrull]

Yes that would be a job that you could pay her for as long as it is reasonable pay etc. A limited time replay of my Kids on Payroll Masterclass is available right now jamietrull.com/masterclass or if you are ready to take the steps to hire her you can check out my Step by Step Hiring Your Kids Toolkit jamietrull.com/kids

[@nishalsikriwal7571]

Nice video! very helpful. I have an S Corp through I provide consulting services on the side. This year i would like to hire my son but the S Corp does not have any income. Can I still hire my sone and pay him? My son is 18+, technical and will be building the S Corp website.

[@JamieTrull]

You can, although there won't be much in the way of tax benefits if the S Corp doesn't have income. The tax benefits come mainly from shifting income from a higher tax bracket to a lower tax bracket.

[@manukaushik144]

Which bank would you recommend for opening a child’s bank account? It looks like not a lot of banks allow opening bank account for kids below 12 with direct deposit and investment options.

[@JamieTrull]

We use Greenlight! There is a small monthly fee, but it’s honestly fabulous. My son sets up savings goals, invests, gives to charity, and we can both monitor everything on an app! Plus you can do direct deposit! If you sign up, I’d love for you to use my referral link! HTTPS://JamieTrull.com/Greenlight

[@manukaushik144]

@@JamieTrull Thank you, I will check it out. Will any custodial account (such as in Fidelity) work the same as well?

[@magdyissa3339]

Can you still hire your children if you just stay as an LLC and pay them 1099? Thank you!

[@JamieTrull]

In general, it is hard to justify paying your kids as as 1099 contractor, as under labor laws its unlikely a minor could qualify. Also, it's better to hire them as a W-2 as they won't have to pay payroll taxes (if done correctly), and they will have to pay self-employment tax if you hire them 1099.

[@meredithgardner2541]

My minor child would need to be a 1099 as tax/retirement investment wise for me as the sole owner of the scorp it wouldn’t make sense for him to be a W-2. Is it possible for him to just be a contractor? You said minors usually don’t meet the requirements for an independent contractor but I don’t see why not.

[@JamieTrull]

Independent contractor means they are essentially their own business owner. That means they would pay for their own work expenses and not require significant training. They'd also have to pay both sides of self-employment tax. If you set up an FMC and employed them W-2 instead, there wouldn't be any self-employment or payroll taxes, so its generally preferred to do it that way.

[@gharper248]

Question.... So if your child is over 18 (but less than 21). Legit work being done, etc. Would it not be easier and accomplish the same taxes on the child's part as just 1099 them as Outside labor? Just saves having to setup a SP or LLC management comp. Or am I missing a step or tax? Thanks very informative.

[@JamieTrull]

For an older child you may be able to justify 1099, but they will be subject to self-employment tax at that point of 15.3% and they will need to file their own tax return (even if they make under the standard deduction). Self-employment tax kicks in at the first dollar of self-employment income.

[@rc8850]

Seems complicated... How would you file the paperwork / 941 as an LLC?

[@rc8850]

What payroll provider would not require withholding social security?

[@JamieTrull]

Thanks for this question, its a bit more complex than I can answer in the comments, but feel free to submit it here for my next KZbin live show: www.JamieTrull.com/KZbin

[@CR-ir2rl]

Can a grandparent who owns an S Corp benefit as well in hiring a grandchild?

[@JamieTrull]

Yes BUT it's a bit more complex as the parents would need to set up a family management company to get the best tax benefits!

[@stacenone1405]

When the Family management company always breaks even or doesn't profit over time, does the IRS try to disallow as an actual buisnes?

[@JamieTrull]

I haven't ever personally heard of this happening. There are a lot of companies that are designed as holding companies that don't make income. As long as you have an explanation on the why, I and good records, I don't see why it should be an issue.

[@ExxoticsClub]

What about hiring nieces and nephews?

[@JamieTrull]

You could do this, but the parents would have to be the owners of the family management company to get the full benefits in that case.

[@kleinpellteamrealty4561]

Does the Family Management Group have to file a tax return?

[@JamieTrull]

You would file a Schedule C for it in your normal 1040. If you pass everything through, net profit for the FMC should be zero

[@MichelleWolff11]

Can I hire my grandchildren with my S Corp using these guidelines?

[@JamieTrull]

Yes, you can in some cases. However the exceptions to child labor laws and not paying SS and Medicare only apply if you are a parent or "standing in place of a parent".

[@suzanigans5857]

Won't they then have to pay self-employment taxes?

[@JamieTrull]

Self-employment taxes are for 1099 contractors. In this case, you are employing them from your family management company as a W-2 employee, and they will be exempt from payroll taxes because of their age and the fact that they work for a parent-owned business.

[@stephaniecarpenter1033]

My question is does the LLC have to file quarterly reports since there are no FICA withheld? Next does the LLC need to file w2/w3 if the minor child is the only one on payroll? Also if the LLC has 2 employees and then their 2 children.... do they include the childs figures in the quarterly reports and do they file a w2 for those 2 children along with the others?

[@JamieTrull]

Best practice is yes to all of these.

[@ReachXEnt]

FYI, I only see black screen (audio only).

[@JamieTrull]

weird! I can see it. Is it still black screen for you? Maybe your connection?

[@ReachXEnt]

@@JamieTrull no. I can see it now.

[@KKRRenewables]

Just found your video and went to the site. The prices on the site are double the video. Any chance a like, subscribe, and comment can get me a discount on the kit? Thanks so much for your time on this video it was great.

[@JamieTrull]

Hey there! That was a pre-sale price that we only had available the week before we officially launched the Toolkit last year. We’ve also added quite a bit to the Toolkit from what was originally included, so it’s for sure worth the money! But since you asked- we do have a $50 off (plus extra bonuses!) for summer promo (ending soon) with code SUMMER24. We also added a payment plan to make it more accessible! Hope that helps!

[@KKRRenewables]

It does, thank you. Every little bit helps. I am wondering if your kit includes information on my scenario. I think I need to be a sole proprietor and use my LLC to pay the kids. Then I use the expenses to the LLC as an expense to my sole proprietor business. Is that sort of information included? I’m going to go out and review now also. Thanks again!

[@JamieTrull]

⁠@@KKRRenewables the kit walks through what scenarios you may need a separate entity (a family management company) to pay your kids, and how to do it properly. It also includes information on how the cash flows should work in those scenarios and what needs to be filed for taxes. Hope that helps!

[@MikeSwain-qs4io]

Treat the children as independent contractors, pay the payroll taxes, then contribute to their ROTH IRA.

[@JamieTrull]

You can for sure do this, but they'll have to pay 15.3% of self-employment taxes from the first dollar they earn. That's why I recommend hiring them as an employee instead. Plus, its hard to justify that a minor actually meets the definition of an independent contractor.

[@taxguruette]

Defeats the purpose of hiring kids. Most kids cannot work independently

[@peterm4486]

I've watched 12 of the 15 minutes...I appreciate the video but the $13,850 standard deduction for the child is only for a child who is not claimed by you...claiming your child is much more common in these scenarios in my opinion...my apologies if you mentioned it at the end of the video

[@JamieTrull]

You can still claim a child who is making an income, as long as you still provide more than 50% of their annual support. This also includes things like food, housing, clothing, transportation, etc. Essentially, as long as your child still relies on you for the majority of financial support, you can claim them as a dependent.

[@peterm4486]

@@JamieTrull Absolutely agree!

[@taxguruette]

There is no economic substance to this. Not really legal.

[@JamieTrull]

If done properly (and documented well), it will have economic substance. If the FMC is actually managing the child, logging time, invoicing the S Corp - it absolutely has substance. Additionally, especially in cases where a child is working for multiple family-run companies, it can centralize and simplify the payment of family employees. Entities that centralize certain activities are quite common and generally acceped when it comes to business structure (again, so long as proper documentation exists). If desired, to prove that economic substance you could even pay the management company an additional fee for its services, meaning it will post a profit which can further prove economic substance. I understand that some CPAs may be very conservative from a risk perspective, but like most decisions it isn't black and white. The resources I provide to people explain how to ensure you have proper documentation in place to defend economic substance if you ever need to.