Date: September 9, 2020
More kids are home than ever before – how you can get a tax benefit while homeschooling.
Parents are stretched thin with school-age children stuck at home as campuses are just starting to open back up in some areas while being suspended in other areas. While most parents are already super-heroes these added challenges could be the straw that breaks the camel’s back.
Since the kiddos will be home anyway – why not give them some responsibilities to help with the business? While you teach them during the day and they complete their totally new remote learning routine, you could start to build in business tasks that they can get paid for. The best part? The business can take the deduction (up to certain annual amounts) for income tax purposes, while the apple of your eye gets to benefit from their hard work, tax-free! (This is what we call a double-whammy folks!)
Here is how it works. You can pay your child up to the standard deduction amount each year for helping out in the business to lower your taxable income while setting aside money for your child. There are some regulations and strict rules the IRS has in place that you must abide by but if you do it right, that’s a maximum tax benefit (direct tax savings) of 4,440 per child (assuming a 37% income tax rate).
The kid must be old enough to complete the tasks assigned to them, they also must be under age 21. You’ll want to make sure you’re having them clock in and out to maintain those records for the business, and you can’t pay them an outrageous amount. You’ll also need to process the paperwork to make them legal employees of the company – including sending them an annual W2. Because the child will be a minor, as their parent you get to handle their compensation. We suggest opening a new account in the kiddo’s name (with you as a co-signer of course) and depositing their payments to that account to be spent on their expenses (school supplies, groceries, clothes, etc).
Always be sure to consult a professional to ensure you’ve got all your T’s crossed and your I’s dotted. Then, BAM!~ You’re now at least 4,400 richer – you just beat the taxman by keeping those thousands in your pocket as opposed to sending in a check to the IRS.
If you’d like to discuss this strategy or see if any of the hundreds of other strategies that are out there are right for you, click the link below to reserve a free tax analysis.