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Skip the Allowance and Hire Your Child
Eva Rosenberg, EA
It takes about $200,000 to raise a child (not including paying for college), according to the USDA’s annual report. Play with this nifty tool at Bankrate.com to see just how much your child costs.
How can you reduce these staggering costs?
Teach your child about money
TaxMama recently moderated a BlogTalkRadio discussion with Dr. Brad Klontz about H&R Block’s Dollars & Sense program, which provides free tools to help parents, schools, and teens learn about money, budgeting, and financial choices. Suze Orman’s website MoneyMindedMoms.com has an entire section devoted to raising money-minded kids. (Full disclosure: I write for both of these resources.)
Hire your child
Isn’t that a red flag? True, some tax-reduction schemers have faced criminal prosecution for promoting this idea. Why? Because they encouraged customers to put their kids on their business payrolls without having them work for the business. Not only is that a tax crime, but it’s also a really bad example to set for your children.
Hire your child for real. Make it clear how important he can be to the success of your business. Don’t lie. Don’t pretend it’s for his own good. YOU need the help. He can help in a variety of ways, depending on his age and skills.
Here are some ideas: your child can help with bookkeeping, filing, letter writing, billing, web design, blogging, marketing, deliveries, shipping, assembling, cleaning up, inventing, market research, selling, and customer service. Encourage her to take on the tasks she would enjoy the most. She may have talents or interests in areas you had not realized that would benefit your business.
Keep the arrangement businesslike. Use time cards if paying on an hourly basis. Keep metrics when paying for performance (number of subscribers, visitors, or new customers, or on commission). Your child may earn a percentage of revenue, or become a partner, if he comes up with a business product, service, or Website you would not have dreamt up.
Many teens have built businesses or websites that earn millions of dollars. It’s not unreasonable to make a teen a full partner when she knows her own generation well enough to create something like Napster, is it? Plenty of adults have underwritten the costs of a child’s business idea.
What are the tax benefits of hiring your child?
If your child works just ten hours a week, for $10 per hour, the wages would be $5,200 per year. Considering FICA/Medicare taxes (15.3 percent), federal (25 percent) and state income taxes (5 percent), you save nearly $2,400 per year. Toss in the other benefits, and you might even double your tax savings. Or you might make health care or college affordable.
Medical Tax Deductions Are Worth More Than You Think
5 Tax Lessons Learned from Filing Your 2010 Tax Return
Last-Minute Tax-Filing Tips: 6 Mistakes Every Tax Filer Should Avoid
Strategies to Ensure You Get Credit for Your Charitable Deductions
Do I Get a Deduction for My Gifts? Or Do I Get Punished for Being Generous?
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
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