Equifax

Finance Blog

Skip the Allowance and Hire Your Child

Written by Eva Rosenberg on May 25, 2011 in Tax  |   No comments

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…

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?

Two ways:

  1. Teach your child the value of money
  2. Skip the allowance and hire her to work in your business

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?

  • The child’s wages reduce your taxable profits.
  • If the child is under age 18, his wages are not subject to Social Security and Medicare taxes.
  • If the child is under age 21, you don’t have to pay federal unemployment taxes, either.
  • The business can provide fully deductible health insurance and medical benefits.
  • If a vehicle is needed for the position, the business can provide the vehicle or mileage reimbursements.
  • The business can provide educational benefits.

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.

READ MORE:

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?

Eva Rosenberg, EA is the publisher of TaxMama.com, where your tax questions are answered. Eva is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com.

No comments yet


Leave a Comment


Name :


Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.


Tax Archive

Stay Informed Sign up for our FREE Equifax email Newsletter