June 24, 2014
As the summertime school vacation season approaches, young family members may be looking for a job – and having a hard time finding one. Hire them in your family business, and you get a double benefit: helping the kids gain valuable experience and garnering tax breaks for your company.
Here's what you need to know.
Whether your sole proprietorship business operates around the kitchen table or in the fields of your farm, wages you pay your under-age-18 children are not subject to social security, Medicare, or federal unemployment taxes. Note: You'll have to pay social security and Medicare taxes when your children are age 18 or older. They're exempt from federal unemployment taxes until they reach age 21.
Wages you pay your children are deductible from your business income, meaning potential savings for the business on self-employment tax and federal and state income tax.
The wages must be paid for legitimate work at a reasonable rate. Be aware of nontax issues too, such as your state's youth employment rules, which can be more stringent than federal labor laws. If your business is a family farm, keep apprised of newly proposed regulations that may limit the parental exemption for employing young farm workers.
Wages do not impact "kiddie tax" calculations. In addition, your child can earn up to $6,200 of income during 2014 before owing federal income tax.
The payroll tax exemption is different from the self-employment rules, and applies to wages you report on Form W-2 at year-end. Income earned as contract labor, which is generally reported on Form 1099-MISC, is subject to self-employment tax.
Contact us if you have questions about the tax consequences of employing family members.
This tax season is an important one for many business owners because it’s the first that will be impacted by the Tax Cuts and Jobs Act (TCJA). How big of an impact is dependent on your unique situation. We’ve compiled this short list of provisions that may affect the business community:
According to Forbes.com, Super Bowl viewers traditionally load up on millions of pounds of less-than-healthy foods during the big game—including ribs, pulled pork, tortilla chips, nuts, popcorn and bacon—all washed down with beer (the Super Bowl beverage of choice). If you are trying to stick to your New Year’s resolution to eat better, consider a few healthy substitutes for the traditional Super Bowl eats:
The combination of running a business and your life and preparing for tax time can drive some people into a slight panic. But no need to get stressed if you are prepared. Now is the time to start organizing all documents required to file your tax return.