Monday, May 20, 2013
GETTING READY FOR SUMMER - PUTTING YOUR KIDS ON THE PAYROLL
Are you self-employed? Do you plan to hire your dependent child(ren) to work in your business this summer?
Hiring your kid(s) is a great deduction for parents of minor children who have a net income-generating Schedule C business.
(1) For 2013 a dependent can earn up to $6,100 in wages (or a combination of wages and up to $350 in “unearned income” – i.e. interest, dividends, capital gains) and pay no federal, and probably no state, income taxes.
(2) Contributions to a traditional IRA can add another $5,500.00 to that figure (however, in the long run, it is probably better to contribute to a ROTH IRA in such a situation).
(3) If the child is under age 18 you don’t have to withhold or pay FICA (Social Security and Medicare) taxes, and probably state unemployment and disability contributions, on the payments. Wages paid by a parent’s unincorporated business to a dependent child under 21 are also exempt from FUTA (federal unemployment) tax.
(4) Wages paid to your child is “earned income” and is not subject to the “kiddie tax” rules.
If you do hire your child(REN) it is important that you
• Create a written job description for each “position” outlining the duties and responsibilities involved.
• Pay the kids on an hourly basis.
• Use a time card or sheet to document hours worked and work performed (a sample time card is included in my Schedule C Forms, Schedules and Worksheets compilation).
• Write a company check as payment each week or every-other week.
• Even though the wages are not subject to FICA and FUTA tax and probably also state unemployment and disability contributions, file all appropriate quarterly payroll tax returns, such as the federal Form 941 (you can indicate that the wages are exempt from FICA on the form), submit an annual federal Form 940 indicating the amounts paid as “exempt”, and issue a W-2 in January to report the wages paid.
• If you have other employees make sure the kids’ wages are included on the quarterly and annual payroll tax returns.
This topic is covered in more detail in my report THE SCHEDULE C NOTEBOOK, which has been updated for tax year 2013.
As a special offer – if your order for THE SCHEDULE C NOTEBOOK is postmarked by May 31, 2013, I will also include SCHEDULES, FORMS AND WORKSHEETS FOR SELF-EMPLOYED TAXPAYERS, a $3.00 value, free of charge!
Send your order (with check or money order for $6.95 payable to Taxes and Accounting, Inc) to –
WANDERING TAX PRO SCHEDULE C OFFER
TAXES AND ACCOUNTING, INC
POST OFFICE BOX A
HAWLEY PA 18428