Tax Saving Tip: Adding Your Children to Payroll
Hi. My name’s Greg Reed, and I’m the head of tax here at SmartBooks. Today, I want to talk to you about a simple but effective tax planning strategy.
If you have kids, and you own a business, you could potentially add them to your payroll and shift income from your tax bracket to potentially a tax-free tax bracket. The way this works is if you pay your child up to the standard deduction, this year for 2019, that’s going to be $12,200. You pay them that amount of money. They don’t have to claim it. You still get to claim them as a dependent, taking the child tax credit, yet you’re shifting income from your tax bracket, say that’s 35%, to a much lower tax bracket, say potentially 0%. Then you could save a boatload of money.
Now, there are some things to consider here like payroll taxes, the type of entity, and can your kids actually perform the work that you are paying them for? All these things need to be considered, so if you think that you might qualify or if you have children and you own a business, this might be something that you want to talk to us about. Contact us and we’ll be happy to give you some advice.