The recent tax reform eliminated personal exemptions for taxable years after December 31, 2017, and before January 1, 2026. This makes your child worthless to you on your Form 1040.
But there is a way to get even or, perhaps, much more than even.
Let’s set the stage first. For taxable years after December 31, 2017, and before January 1, 2026, the standard deduction for a single taxpayer begins at $12,000 in 2018 and increases every year for inflation.
The new standard deduction means that a single taxpayer such as your child can earn up to $12,000 in W-2 wages and pay not a penny in federal taxes.
As the owner of a business, you have the advantage of being able to hire your child to work in your business, and that creates tax-saving opportunities for both you and your child.
The big dollar benefits of hiring your child go to the Form 1040, Schedule C taxpayer and the husband-and-wife partnership because such businesses are exempt from FICA when they employ their children who are under age 18.
The S and C corporations and the non-spouse partnerships do not qualify for this benefit. They have to pay the payroll taxes on all employees—period. There is no parental benefit.
This changes the game, obviously. But in most cases, it actually works out pretty well.
If you would like to examine the dollar benefits of hiring one or more of your children to work in your business, please don’t hesitate to reach out to your Luster Tax team. We’ll need some time to see how much your family can pocket from this strategy. Then, if this looks good to you, we need to make sure that you have the necessary procedures in place for your family to realize the benefits.
We just sent you an email. Please click the link in the email to confirm your subscription!