Last updated on January 24th, 2024 at 06:43 am
One of the most effective tax-saving strategies for entrepreneurs involves bringing family members into the business fold.
Consider this: by hiring your children who are under 18, you can provide them with a salary of up to $14,600 each. At this level, they won’t owe any federal income taxes. Simultaneously, as an employer, whether you’re an individual or a corporation, you can deduct the same amount paid to each child from your taxable income.
This approach presents a win-win scenario. Your children benefit financially, and you gain from a significant tax deduction. But the advantages don’t stop there.
Another noteworthy benefit is the ability to sidestep certain payroll taxes on the $14,600 paid to each child. By adhering to specific legal frameworks, these wages can be exempt from Social Security, Medicare, and FUTA taxes under a FICA exemption.
Moreover, the standard deduction for an employee-child under 18 shelters the first $14,600 of their wages from federal income tax.
This means zero federal income taxes for the child and no federal income taxes for you on these wages. Furthermore, you also escape payroll taxes on these earnings, leading to substantial overall tax savings.
This method is just one among many that we utilize to reduce our clients’ tax burdens.
On average, individuals can realize annual tax savings of over $31,342 by employing such strategies. Learn more about year-end tax-saving strategies to cut your bill.