My oldest son, age 7 ½, is already showing interest in PowerHomeBiz, much to my delight. I look forward to hiring him to help around in the business.
What are the benefits of hiring family members, especially your kids, for your business?
For me, it all starts by giving my son an understanding of the value of work. Plus, I want to distil in him the spirit of entrepreneurship and nurture his can-do attitude. Even if he will decide a different career when he grows up, working with me in the business can give him valuable work experience.
Hiring a family member can also be about tapping the skills that they possess. If my son becomes adept at web design, for example, I’d gladly hire him to be our Webmaster to maintain the site. Maybe he can even redesign PowerHomeBiz.com to give it a cleaner look!
Getting tax savings is another big advantage of hiring your kids. According to The American Institute of Certified Public Accountants in the article “Tax Planning for the Self-Employed”
Hiring a family member to work for your business can create tax savings for you; in effect, you shift business income to your relative. Your business can take a deduction for reasonable compensation paid to an employee, which in turn reduces the amount of taxable business income that flows through to you. Be aware, though, that the IRS can question compensation paid to a family member if the amount doesn’t seem reasonable, considering the services actually performed. Also, when hiring a family member who’s a minor, be sure that your business complies with child labor laws.
As a business owner, you’re responsible for paying FICA (Social Security and Medicare) taxes on wages paid to your employees. The payment of these taxes will be a deductible business expense for tax purposes. However, if your business is a sole proprietorship and you hire your child who is under age 18, the wages that you pay your child won’t be subject to FICA taxes.
By hiring family members, you can also begin saving under a tax-deferred 401(k) plan, thus keeping income the company would ordinarily pay out to employees within the family.
But the biggest advantage for me pertains to succession planning. Exposing my kids early on the business brings the hope that they will carry on the vision for us, when my husband and I retire from the business.