You say you're a one-person business and you have no employees? Below I will show you how your family can become employees and you can save tax dollars.
Your children can earn a paycheck from you rather than you paying them an allowance.
Even home based businesses are allowed to write off (deduct) janitorial services. If you have a home based business hire your children to dust, vacuum and take out the trash.
In 2008 you can pay your children up to $5450 tax free to them and you get to deduct that amount as wages from your income.
A limitation is that they must be at least 6 years of age.
Hiring individuals under 18 means they are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
Your should use a formal Employment Contract to hire your family members in order to audit proof this part of your home business deductions.
The IRS stipulates that the wage-rate has to be "reasonable and customary" within your industry and region of the country for the type of work being performed in order to qualify.
So you cannot pay your kids $100 an hour for taking out the trash. How do you establish what is "reasonable and customary?" Get an outside company to give you a written estimate for the work to be performed, and then pay your family member approximately that amount. Or determine what a reasonable person might pay an employee or outside contractor for such services, and pay a similar wage to your family member.
The kids (as employees) have to document what they did to earn the money, so have them fill out a simple "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
After they turn-in their 'work log,' you then pay them by check.
In order for you to deduct the wages your children earn as a business expense the law requires that you actually pay them but the law does not restrict how that money is used after it's paid.
The tax-deductible $5,450/year Uncle Sam lets you pay your children as employees, is equivalent to $104.80 per week!
But, you say, "Who gives their kids an $104.80/week allowance?" YOU will now! And heres why!
So let's presume you have come up with the tax-free limit of $104.80 per week in home-business related "chores" for them to do. At the end of the week they will turn in their 'work log' and you'll pay them by check.
Open up a separate interest bearing checking account for them to deposit and cash payroll checks. Every week you will deposit their pay check.
When you open a checking account for your child the bank will require it to be a "joint account" since he/she is a minor. Although it's a joint account only you will be able to make withdraws or write checks on the account since your child is a minor.
Here's where it gets interesting. You tell your child you will withdraw $15 (for example) from each week's pay for them to spend any way they wish. Tell him/her that the other $89.80 will stay in the interest bearing checking account to be used by you to pay for _______.
The blank can be filled in with words like graduation trip, car, wedding...whatever you like.
Did you ever, in your wildest dreams, anticipate that you would be able to pay for school supplies and tennis shoes, or pay for cars, trips and weddings out of pre-tax dollars?
This is 100% legal and true!
Your children can earn a paycheck from you rather than you paying them an allowance.
Even home based businesses are allowed to write off (deduct) janitorial services. If you have a home based business hire your children to dust, vacuum and take out the trash.
In 2008 you can pay your children up to $5450 tax free to them and you get to deduct that amount as wages from your income.
A limitation is that they must be at least 6 years of age.
Hiring individuals under 18 means they are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
Your should use a formal Employment Contract to hire your family members in order to audit proof this part of your home business deductions.
The IRS stipulates that the wage-rate has to be "reasonable and customary" within your industry and region of the country for the type of work being performed in order to qualify.
So you cannot pay your kids $100 an hour for taking out the trash. How do you establish what is "reasonable and customary?" Get an outside company to give you a written estimate for the work to be performed, and then pay your family member approximately that amount. Or determine what a reasonable person might pay an employee or outside contractor for such services, and pay a similar wage to your family member.
The kids (as employees) have to document what they did to earn the money, so have them fill out a simple "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
After they turn-in their 'work log,' you then pay them by check.
In order for you to deduct the wages your children earn as a business expense the law requires that you actually pay them but the law does not restrict how that money is used after it's paid.
The tax-deductible $5,450/year Uncle Sam lets you pay your children as employees, is equivalent to $104.80 per week!
But, you say, "Who gives their kids an $104.80/week allowance?" YOU will now! And heres why!
So let's presume you have come up with the tax-free limit of $104.80 per week in home-business related "chores" for them to do. At the end of the week they will turn in their 'work log' and you'll pay them by check.
Open up a separate interest bearing checking account for them to deposit and cash payroll checks. Every week you will deposit their pay check.
When you open a checking account for your child the bank will require it to be a "joint account" since he/she is a minor. Although it's a joint account only you will be able to make withdraws or write checks on the account since your child is a minor.
Here's where it gets interesting. You tell your child you will withdraw $15 (for example) from each week's pay for them to spend any way they wish. Tell him/her that the other $89.80 will stay in the interest bearing checking account to be used by you to pay for _______.
The blank can be filled in with words like graduation trip, car, wedding...whatever you like.
Did you ever, in your wildest dreams, anticipate that you would be able to pay for school supplies and tennis shoes, or pay for cars, trips and weddings out of pre-tax dollars?
This is 100% legal and true!
About the Author:
Karin has owned a small business specializing in tax preparation for home based businesses for 36 years. Her website: Home Business Owners-Reap the Rewards proposes more income tax for home business owners. She highly suggests the book 'It's How Much You KEEP, That Counts! Not how much you Make' for all her clients.
Aucun commentaire:
Enregistrer un commentaire