Posted by Fred Lake

A Critical Overview On How Hiring Your Kids Is Good For New Tax laws

A Critical Overview On How Hiring Your Kids Is Good For New Tax laws

If you run your own business, then your children can play a great role in saving you from paying taxes. More than that, you will be amazed to know how hiring your kid is good for new tax laws. It is because, new changes that are initiated from the TCJA, make hiring your kid a great tax saving strategy.

Why hiring your kid helps you in saving your tax expense?

 So, if summers are approaching and your child desires to make his vacations productive you can allow them to become a legitimate employee of your business. By hiring them, you look at their salaries as an expense from your business. How hiring your kids is good for new tax laws, is clearly evident, if your child is still under 18, and is working with you. He is exempted to become a taxpayer of Medicare or social security tax on the income he receives.

In this way, if how hiring your kids is good for new tax laws, is it beneficial for parents as well. They can reduce a considerable amount of tax income. It is only possible if they shift their business revenue from their tax bracket to their child’s.

How tax laws have reformed after kid’s hiring

Let us have a now look at how the laws regarding income tax has reformed since time and how hiring your kids is good for new tax laws

If you hire your kids to work in your business, the tax reforms are getting benefit from your decision. It is because, the TCJA has increased the average tax deduction percentage relating to the income your child receives. For example, from 2017 to 2018, kids who can earn up to $12,000 annually are not permitted by tax laws to pay their tax on their earnings.

If the child’s income exceed from $12,000, he/she will be subjected under new income tax reforms. He/she needs to pay certain amount of taxes at the new, reduced tax rates that are decided by Tax Cuts and Jobs Act.

The other side of the Picture

The parents who adopt this shrewd tax saving strategy should be aware of the fact that IRS always has its both eyes on their tactics. The IRS is greatly aware of the tax benefits that are received by kid’s hiring and that’s why it is always on its feet looking for those taxpayers who exploit this benefit for their own good.

If the IRS arrives at a decision, after investigating that your kids are not actually working in your businesses, then you will be in trouble. You will cease to enjoy tax benefits that you receive through tax deductions on your child’s business income. In this way how hiring your kids is good for new tax laws will turn on its head as these laws will cease to give benefits to the adult taxpayers.

So, in order to overcome this, you need to make one thing a rule of your thumb

Hire you child as a real employee

If you hire your child for your business, make sure that he is not performing trivial odds and ends for you. Just like any other employee, he needs to work with the same caliber, productivity and the duties he performs should be related to your business only.

One important way to show the tax authorities that your child is your legitimate employee, is to make use of bookkeeping. Through bookkeeping you can note down the hours he work each day, the services he performed and the deadlines of projects assigned to him. Moreover, it is also recommended that your child write a written agreement regarding the employment and the specific timings at which he is available for work. Keep in mind that these bookkeeping strategies are not always legally required. But if IRS alleges you for manipulating the how concept of how hiring your kid is good for new tax laws, then, you can show them evidence that your child is your legal employee.

In conclusion, if how hiring you kid is good for new tax laws, it is also a great tax saving tool. Nevertheless,  the taxpayers are always under close scrutiny by tax authorities if they meddle with the benefits provided to them by the new income tax laws .




Fred Lake
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