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.
Hiring your children is one way you can legally save on your taxes. Check out the article “Pay Your Children to Work for You with the Blessing of the IRS” http://www.powerhomebiz.com/062005/taxes.htm.
The IRS is ok with the practice of hiring children for the business. Here is what they say about the issue and how you can save on your taxes by having your children work in your business http://www.irs.gov/businesses/small/article/0,,id=97748,00.html
As for the garage, it is best to talk with a tax expert to help determine the best approach for this topic.
I have an LLC and am a 50% member with my business partner. When it comes to asking familly members to help with the buisness for various jobs, my business partner feels like our families should work for free. She sees our business as a family busines that they should contribute to. Her 2 children are in the 6th and 9th grades. I feel that if I needed a service that I would be paying for anyway, I should pay family memebers to do the work if they are qualified to preform the service. My children are 18 and 21. For example, my child created a very nice video to promote our business that I linked to or website. My partner believes that he should create the video for free and I don’t. I ended up paying him partcially through our LLC and then gave him some more out of my pocket.
Our business also has two trailers. My business partner pays to have hers stored at $100.00/month. I would prefer to store my trailer at my house but since my husband is giving up part of his garage, feel that we should pay him the $100.00 a month to compensate him for the space. My partner feels he should give up his garage without compensation. She would, however, be glad to pay another storage facility to store the trailer. What are your thoughts on when to pay family members for services and work? What should the boundaries be?