Hiring Your Children Has Monumental Benefits: Decrease Taxes, Increase Profits

Finding money-saving strategies for your real estate investment business isn't easy. It's hard. That's why the most successful investors are vigilant and proactive when finding powerful tax breaks. Have you considered hiring your children to decrease tax liability?

Does saving money on taxes sound attractive to you? You're definitely in the right place.

This article lists the remarkable tax benefits of hiring your children.

These benefits work to reduce your taxable income. These strategies are easy to use for your real estate investment business and save you money. You'll have more available cash to grow your business and secure your financial freedom.

The Truth About Hiring Your Children

The benefits of hiring your children are a massive advantage for running your own company. The type of business you have matters.

The IRS has guidelines for Family Help, but in general, the rules for your business are:

  • Sole proprietorship, or a partnership consisting of both parents: wages for a child under 18 are not subject to FICA
  • Corporations, partnership, estate: wages are subject to FICA

No matter what type of business structure you have, you will want to find ways to reduce your taxable income. Royal Legal Solutions can help. Be sure to check out our robust collection of Tax Strategies and Services. You will find expert advice about a myriad of tax strategies that you can leverage as a real estate investor.

Quick And Easy Tax Relief

The tax benefits of hiring your children are substantial. The standard deduction for 2022 is $12,950. Your child does not have to pay income tax on the money owed. It's tax-free!

Those wages matter to you as a business owner because you get to deduct your child's wages which lowers your business' taxable income. That's a win-win! There is an additional way to save $6,000 with the cunning use of a 401K or Roth IRA.

Suppose you pay your child $12,950. Additionally, you pay $6,000 into a tax-deductible IRA in which you are the custodian. A retirement account is an extraordinary exploit because you:

  • Keep the money in your family
  • Reduce your taxable income by $18,950

This strategy works for each of your children who you employ. That means if you have 2 children, you can potentially deduct a little more than $37,000 from your company’s taxable income.

IRS' Reliable and Direct Rules About Hiring Your Children

There are several benefits of hiring your children. The IRS is aware of the benefits of you hiring your children to work for you, and they keep close tabs on taxpayers who try to abuse the system.

To avoid running afoul of the IRS, here are some guidelines you need to keep in mind when you decide to hire your children:

  • Your child must be between 7-22 years old
  • Work must be real work, age-appropriate, and for the business
  • Wages and compensation must be a reasonable rate that you would pay another employee
  • Fill out the necessary paperwork, including:
    • W-4
    • Form I-9
    • SSN
    • EIN
    • W-2
  • Keep good records of the type of work and hours

Free Money: Defeating FICA

If you have an adult child who works for you or a corporation, you have to pay FICA. Don't fret, though; you have a few strategies at your disposal to enjoy the benefits of hiring your children.

The first strategy is to hire your adult child on an ad-hoc basis. That means you hire your child for single, one-of projects. For instance, perhaps your child is good at programming, and you pay them $7,000 to create a software program for you. In that instance, you would not have to pay FICA.

You have to be careful here, though, because you might have to pay FICA if you hire your child consistently. A consistent basis might be several projects in one year or a project every single year.

The rules are clear if you are an S-Corp. You have to withhold FICA taxes from your child's paycheck. In that case, you need to be innovative.

Here is how you can still avoid paying payroll taxes on your child's wages:

  • Create a new sole proprietorship from your S-Corp that you or your spouse owns
  • This sole proprietorship supports your S-Corp and employs your child:
    • Scheduling
    • Monitoring
    • Bookkeeping to keep in line with IRS
    • Payroll to document wages for the IRS
  • The sole proprietorship charges the S-Corp a management fee and pays your child $12,950 (standard deduction)
  • Your child is no longer on the S-Corp's payroll
  • The IRS' Family Help rules apply to the sole proprietorship
  • You don't have to deduct payroll tax

Key Takeaways

Exploit the powerful tax benefits of hiring your children for your real estate business. You will be able to save substantial money on taxes, up to $18,950 per child. When employing your children, follow the IRS rules and keep pristine records.

For more education about opportunities for real estate investors, join our Royal Investing Group Mentoring on Wednesdays at 12:30 p.m. EST. We meet weekly for an hour as a large group to learn, share, and collaborate on relevant topics in a fun and friendly format.

Keep more of your money with a Royal Tax Review

Find out about the tax savings strategies that you can implement as a real estate investor or entrepreneur by taking our Tax Discovery quiz. We'll use this information to prepare to have a productive conversation. At the end of the quiz, you'll have an opportunity to schedule your consultation.    TAKE THE TAX DISCOVERY QUIZ

Last Updated: 
June 22, 2022

Scott Royal Smith is an asset protection attorney and long-time real estate investor. He's on a mission to help fellow investors free their time, protect their assets, and create lasting wealth.

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