Why Hiring Your Children Is a Great Tax Strategy! | Pay your kids $12,950 Tax Free!!

[@AskaCPA]

Tax or accounting question? Head over to www.askacpa.co/ and leave us a note. You may see your question in our next video. Don't forget the subscribe -> www.youtube.com/@AskaCPA?sub_confirmation=1

[@getoffyoubassandletsfish8565]

I would tell my kids growing up “there are no child labor laws in this house, GET TO WORK”!

[@ralrud5478]

Good video.!! The music in the into is too loud

[@AskaCPA]

Thanks for watching!

[@MaddyDavis-s8j]

We own an egg farm as sole proprietor. Our kids clean the chicken coops, collect eggs, and feed/water the animals. I think it is more than fair to pay them, but we have never claimed their income, we've just always called it "allowance". I wish I'd thought of paying them before this. Now I need to figure out how to do this as a sole proprietor.

[@wattsobx]

Great Vid! Under a single member LLC do I have to w2 my kids who work for the business ? I think the theory is they wont end up paying payroll taxes so you dont have to W2 but can you point met to the irs code to look at? This seems to be a point of contention as tax strategy where some CPAs say you have to do a w2 and others say you dont.

[@maibeautygroup]

Would have to weigh out the benefits vs payroll fees, payroll taxes, work comp. How does this affect the ability to claim them as a dependent? What about when it’s time for college, how does it affect their FAFSA?

[@AskaCPA]

The beauty of this strategy is there are no payroll fees or taxes. You pay them as a contractor but don't issue them a W-2 or 1099. Simply take the deduction as "outside labor" and document the labor the kids performed.

[@Fifufjdjjdhdhdbd]

@@AskaCPAdo you not issue a W2?

[@davidwynne7214]

Thanks for your videos. You are very clear and organized. How do you take the deduction, which expense does this fall under for a LLC sole prop? Business expense?

[@AskaCPA]

Hey David, thanks for watching! The IRS allows any sole proprietorship, partnership, or LLC that is wholly owned by a child’s parents to pay wages to children under age 18 (up to the standard deduction) without having to withhold the payroll taxes and list it as “outside labor” as an other expense. Do not list the expense as payroll because it will not tie to your W-3. You do not have to issue a W-2 to your qualifying child.

[@Fifufjdjjdhdhdbd]

@@AskaCPAwhat does issuing an W-2 entail? do you submit it anywhere or register it anywhere on IRS?.. or is it just for decanting purposes for yourself and your child?

[@bennyl7339]

Do you need to withhold state tax for the kid if you hire them?

[@WSBADVENTURES3]

Great video and articulated well. Thank You!

[@AskaCPA]

Glad you enjoyed it!

[@kittyhoreis8463]

When you do your taxes (your own on turbo tax), where do we document this or is there paperwork you need?

[@AskaCPA]

You should treat your kids like any other employee. Track time, document what jobs they are performing, and pay a reasonable rate. You will take the deduction for the wages paid on your business (Schedule C) as outside services.

[@lifein626]

My son is 20 yrs old and he has been selling to ebay and a bunch of those different online apps-e-merchant since he was 17, he also works part-time on a job. Just recently he went back to school part-time.. My question is I do only door dash as my income. He asked me to help him or hire me as a guy who will post his stuff and deliver and package his online thing and be his driver, because he's always running in a hurry. Can this Vlog be other way around. my son hiring me. Since he told me he pays more than half of the house payment split from my wife and me?

[@AskaCPA]

Since you are over 18, this strategy will not work. He will need to issue you a 1099 or W-2, depending on your status and you will pay taxes on the income. As a contractor, you can deduct your business expenses (mileage, meals, supplies, etc.) and only pay taxes on your net income. Thanks for watching and we appreciate the questions. Cheers!

[@Cabej18]

Great Video! I own a small photography business and have an LLC. Normally I just document what they do, track the hours, have a set wage, and pay them either cash or Venmo from my business. How would you recommend coding the expense in Quickbooks, "Contract Labor"?

[@AskaCPA]

That’s perfect, Caleb! I’d recommend coding the expense as “outside labor”

[@Fifufjdjjdhdhdbd]

@@AskaCPAin his case, what about W2? Is this just for yourself and your kids bookkeeping?

[@aspentree8159]

Thank you for this share. I was wondering if paying your child an income would in anyway disqualify them from the child tax credit?

[@AskaCPA]

Thanks for the question! Yes, your child would still qualify for the child tax credit assuming you meet the other qualifications. This strategy would not disqualify them from the child tax credit.

[@Reclickd]

Hi - great vid. Question…the $6k Roth IRA contribution, is that in addition to the $12,950 you can pay them?

[@johnramsey2009]

You could do $6k in traditional IRA contributions above the $12,950 but not a ROTH. Reason being that the traditional lowers the current year's income while a ROTH does not. $12,950 + $6,000 ROTH is $18,950. vs. 18,950 earned income less $6,000 saved into traditional IRA equals the $12,950 standard deduction and is below the filing limit.

[@AskaCPA]

you got it!

[@seanh690]

Sole proprietor. I have a sep-IRA for myself. I would like to hire my kids and deposit the money to a Roth IRA for them. Do I need to give them a w-2? Does it matter that I have a sep-Ira and do not give them a w-2.

[@AskaCPA]

Great question. You're not required to issue your children a W-2.

[@sachastayswi]

Great video? where do you get comps to estimate "reasonable wages"?

[@AskaCPA]

Great question! I would recommend searching job boards and using a similar wage or hourly rate. Documentation is key for any business deduction, so ensure you treat them like you would any other employee. Thanks for watching, Cheers!

[@marketbuy]

What if I dont have kids? Is it ok to hire my sister’s kids and take the business expense? Also, I’m an SCorp. It is treated differently. I heard it needs to create FCM? 🙏

[@AskaCPA]

Nice try, but they must be your dependent. :) Thanks for the question!

[@DwayneVeritasLogan]

I'm a sole prop filmmaker. Once I pay my kids at less than 12k (3 and 5 yr olds who act and model for my film business) via check or transfer to an account in their name, how can I legally allow expenditures from that account?

[@AskaCPA]

Hey Dwayne, great question. I would recommend running this by an attorney, but I believe as you're responsible for your children's financial interests. There are certain laws for children actors, where the parents are required to put aside a percentage of income, but I wouldn't think this would qualify since you are also the employer. Sorry, I don't have a better answer. Thanks for watching!

[@armen8044]

Thanks for the video. What would be more beneficial in this case, contributing to Roth IRA or Traditional? For tax saving purposes. Can you please explain? Thanks.

[@YongwooFamily-fu1qu]

My business is LTD. Is this same as LLC

[@veronicagross5702]

As an LLC; do I still need to file "0"monthly federal withholding or below the thresholding isn't necessary?

[@AskaCPA]

Hey Veronica, there are no payroll tax forms that need to be filed using this strategy. The expense should be reported on your Schedule C or 1065 as "outside services." Thanks for watching!

[@roba3461]

As a single member LLC, do I need to file form 941 if paying my children quarterly?

[@wattsobx]

what about with form 8814 replacing form 929?

[@michellem7942]

We have an operating s-corp and a real estate llc. We decided to hire our kids in our s-corp but want to avoid the fica. Can we contract the scorp with the llc and we pay yhe kids through the llc without having to setup a family managmeny company?

[@AskaCPA]

Yes, just make sure to document the transaction!

[@polly6795]

What is my son has also a seasonal job

[@AskaCPA]

His total income needs to stay under the max

[@Ryan-Chicago]

Would this also apply to being exempt from state tax, IL specifically?

[@AskaCPA]

Great question, and it would depend on the state. Each state has different filing requirements, which should be examined before filing.

[@美国保险投资理财]

HI How do i pay my kids like W2 or 1099? or do i have another option? which one my llc no need to pay any tax?

[@AskaCPA]

Hey! Thanks for the question. To use this strategy, your kids (under 18) would be considered W-2 employees. No need to withhold taxes or pay employment taxes, as they are treated as outside services. You will need to issue a W-2 at the end of the year.

[@kikkers7081]

Thanks for the video. so, what should be the NAICS code and sub code classification for the LLC, to employ Kids in that LLC?

[@AskaCPA]

It depends on what your LLC is in the business of doing. Hiring your children will not impact the NAICS code. Thanks for watching!

[@jacobmartinez6848]

Great video! will my child have to pay self-employment taxes?

[@AskaCPA]

There is no self-employment tax if they are under 18 and meet the qualifications.

[@kalialylo]

Thanks for this info! Just to clarify, the LLC can only be owned by the child’s parents? If others own part of the LLC, then this would not apply?

[@AskaCPA]

Hey there, thanks for watching! Yes, the child must be your dependent to qualify.

[@YongwooFamily-fu1qu]

If I have LTD with my sister and want to hire my kid to work, can I still use this method?

[@stevegarza1643]

How can I use an image agreement to hire my children as models for my business? Can they be paid an Ongoing license fee from the start? Thank you!

[@AskaCPA]

Hey Steve, I'd contact some local modeling agencies and see what they charge. Use these rates to determine what is fair to pay your children. An agreement would be helpful to formalize the arrangement. I'd work with your local CPA to help define what is needed to maximize the deduction. Thanks for watching!

[@Bluestella33]

Does my child need to file a 1040 for his income put into a Roth custodial account?

[@marinarivera7142]

I am a sole proprietor and need help with this

[@AskaCPA]

Let's chat. Reach out at your convenience. [e-mail]

[@josephearl82]

Do you know if California confirms to the IRS in this manner? Or would paying your child generate a small state tax liability?

[@AskaCPA]

Great question, I'd check with the state of CA, but you will likely need to file in CA. Thanks!

[@bobbycampbell4201]

What if you are a single member LLC elected to be taxed as an S corp?

[@AskaCPA]

Hey Bobby, unfortunately, S-Corps are not allowed this deduction. You can hire your children, but you would need to withhold payroll taxes and issue them a W-2 at the end of the year.

[@danjenn]

Great video! In order to contribute my child's earnings to a custodial Roth IRA, do I need to setup an intermediary account in their name or can I transfer the money directly from my business account to the Roth?

[@AskaCPA]

Hey Daniel, it's recommended that the funds be deposited into the child's account and then into the Roth. Thanks for watching!

[@lb4843]

So talked about federal law for working age but even though federal say we can hire our child at any age under 18, most states say the youngest is age 12. This is misleading bc u need to tell ur viewers that

[@Jwdrummer5]

Do I have to pay Workers comp? Or other employer employee taxes?

[@AskaCPA]

nope, no payroll taxes are required if the total compensation is under $12,950

[@EEZYEEEE]

If I have a W-2 employee in my S-corp that makes $40k per year, is it advantageous to set them up on a similar plan like you’ve mentioned here (LLC Management Company) to avoid payroll taxes on the first $12,950?

[@SteveTitanFX]

What percentage should be given of the business when forming the LLC?

[@AskaCPA]

0% - Don't put equity into your kid's names, just pay them for the work completed. If you want to leave the business to your kids, you should use a living trust.

[@SteveTitanFX]

@@AskaCPA thank you

[@gracemonkuriakose7174]

Hi, I have an s corp and my kids have itin. Can I issue a w2 for them. If yes do I need to do tax for them.

[@AskaCPA]

Hey Gracemon, this technique doesn't work for S-corps. If you hire a child through an S-Corp, you will need to withhold payroll taxes and issue a W-2 at the end of the year. Thanks for watching!

[@gracemonkuriakose7174]

Thank you. If I show my kids as employees of my llc, can I show them as my dependents in my personal return.

[@AskaCPA]

Yes, they would still be dependents

[@gracemonkuriakose7174]

Thanks much

[@jlinden7]

Does this apply to farm (Schedule F) too?

[@AskaCPA]

Hey Jason, yes! Any business including farms would qualify for this strategy. This strategy works with sole props, LLCs, and partnerships. If you're structured as an S corp or C corp, this strategy will not work.

[@ItsYou2]

Hello From Ca, in 2023 supported my 19yr old college students half of the yr but in july she got a full time job and most likely by dec she will make over 13k. So that meanins shes required to file her taxes. But can i still claim her also as depend the fact i did supported her for 6 months?

[@aniakuchta6382]

Hi. Thanks for a great video. I have a quick question. I have a 13 year old who helps me with my cleaning business. She comes to work with me every Saturday and performs the things she is asked. Now I pay her in cash, since she is 13 and can't have an account. Can I still deduct what I pay her?

[@AskaCPA]

Yes, absolutely. You will need to document the payments paid to her along with the work performed. Thanks for watching!

[@thelittlebrowncharmschool8072]

Thanks for the tip!

[@AskaCPA]

You bet!

[@YongwooFamily-fu1qu]

I own LTD with my sister. Can I hire my 12 & 14 year old children and pay them and have them contribute $7000 in 2024?

[@Longface]

Great Video! Would the Single Member LLC / Sole Prop still need to issue a 1099-NEC to their child for amounts $600 and over? Also, do different states have different laws and tax rules regarding this method?

[@AskaCPA]

Nope, you don't need to issue a 1099-NEC or W-2. Since no payroll taxes are being withheld, there is no filing requirement. Most states will follow the Fed, but I would check with your state to determine if there is a filing requirement. Thanks for watching!

[@naomiejima7756]

@@AskaCPA Thank you for this video! I saw somewhere where you need a W-2 to open the Roth IRA for your child. What would you submit if you didn't have a 1099 or W-2? Thanks again!

[@mirimiri524]

I opened it Roth IRA account for my kids last year with Fidelity. My kids didn’t have 1099 or W-2 but those are not required. My kids were able to open an account without it

[@AskaCPA]

Hey Rie, without earned income, your kids don't qualify to contribute to a Roth. If this is audited, you would be required to pull the money out and pay tax, penalty, and interest on the earnings. Fidelity does not know if your kids have earned income or not, so they will let you open an account, but it's your responsibility to make sure you qualify.

[@mirimiri524]

@@AskaCPA Thank you for your comment! My children have earned income from my side business and I keep track of their work/pay in my record. I paid my kids $590 each because I know my business usually needs to issue 1099 to a contractor if I pay more than $600 but I didn't. I opened Roth IRA for my kids and I put in $590. Almost all CPAs on youtube highly recommend putting kids to payroll (not even 1099) but you are saying they don't need it? So in case when my business got audited, how do I prove I paid my kids?

[@ML-bs6dn]

Thank you for the information. I own a child daycare from home. I'm going to hire my child she is under 18 years old Do I give my child 1099 form or do I just claim it under labor contractor? How do I file my taxes, or do I put it under expenses the payments I give her thank you

[@AskaCPA]

Great question! You don't issue your child a 1099 or W-2.. the payments are coded to "outside labor" and deducted on your Schedule C under other expenses. Thanks for watching!

[@ML-bs6dn]

@@AskaCPA thank you

[@miguelrosas8610]

I paid my daughter 12 k and had it to pay 1800 for taxes

[@melindastone493]

if they turn 18 in the middle of the year do you w-2 them or 1099?

[@AskaCPA]

Hey Melinda, thanks for watching! Unfortunately, once your child turns 18, they no longer qualify for this strategy. You will need to pay them as either an employee or contractor depending on the type of work they are performing. The IRS has very specific rules to help determine if a worker is an employee or contractor. Here's an article on that topic: www.askacpa.co/post/1099-contractor-or-w-2-employee

[@arinagreager]

Hi! Is there a minimum age for this?

[@AskaCPA]

Nope, as a parent, you're allowed to hire your children at any age as long as the work is not hazardous and the child is working under your supervision.

[@1factdaily]

DO i need An EIN number to hire them

[@AskaCPA]

nope, an EIN is not required.

[@tonzbal_88]

Thanks for this video. If I hire my kids, do they need to work full time for my business in order to contribute to a ROTH? Or could I hire them as "freelancers" or "independent contractors"? If so, what tax document does my business (single member LLC) need to file? I usually use my kids to model for my baby products since they are too young to do any productive work.

[@AskaCPA]

Hey Anthony, kids do not need to be full time employees. They just need to be paid a reasonable wage for the jobs performed. The determine the wage for modeling, consider reaching out to an agency to get a quote for models. The wage is paid directly to the child and can be put into a Roth. This is a wage and not 1099 income. No tax forms need to be submitted and no withholdings need to be applied if the wages are under the threshold. Thanks for watching!

[@besslifetv]

What's the best platform to pay your child thru for this? Check, transfer from biz account, square invoice?

[@racsoinvestments]

but they have to pay Social Security ?

[@AskaCPA]

nope, no payroll taxes are required if the total compensation is under $12,950

[@طلالشاويش-ك1ه]

،حلم ،،،،،،،،،،،،،،،،،حلم حلم 💭 ،،،،،،،،،،،،،،،،،حلم ،،،،،،،،،،،،،،،،،حلم ،،،،،،،،،،،،،،،،،حلم

[@bullyboy131]

Geez. People need to stop treating kids like adults.

[@Seamossbynena]

I have an EIN and just open my cleaning business and I was thinking of having my kids as employees but I don’t even know how to start 😅help

[@AskaCPA]

Congrats on starting your new business! If your children are under the age of 18, they can work in the business and will qualify for this strategy assuming you meet the qualifications. Good luck!

[@FitTogether18]

Do they need a w2? Or how would that be set up, 1099?

[@AskaCPA]

You can issue a W-2, but it's not required. No 1099.