John R. Bullis: Hiring your child is even better with the new tax law

tax tips phrase made from metallic letterpress type on wooden tray

tax tips phrase made from metallic letterpress type on wooden tray

Maybe Congress realized what they did when they increased the standard deduction for single folks to $12,000 for year 2018 ($24,000 for joint returns).

But now your child can earn up to $12,000 of wages and still pay no income tax.

If you’re self-employed, own your own business and report income and expenses on Schedule C of form 1040, consider hiring your child (or children).

Wages you pay to a child who’s not yet age 21 are exempt from unemployment taxes. If the child is under age 18, the wages are also exempt from FICA and Medicare taxes.

You need to keep good records of when the child worked, what they did and how you determined the pay is the same you would pay a stranger for the same work. The child is to receive a W-2, but there’s no need to hold out income taxes if the total wages are less than $12,000 for the year.

There are several studies that indicate high school and college graduates who worked before graduation do better the rest of their life. If they learn to show up on time, be concerned about doing a good job and learn how to get along with others, they’ll be more successful in the future.

If they earn some money, they may learn to spend the money in good ways. They may even learn to postpone some expenditures until they can pay the full price in cash. They might even decide some things aren’t worth buying. That could help them acquire good cash management and smart spending habits.

You, as the business owner, also benefit if the child is hired. The wages paid are a business deduction that will save you both income and self-employment taxes. For example, if you’re in a 14 percent income tax bracket and you save about 15 percent in self-employment tax, that could save you about 29 percent of the wages paid. If the child only earned $10,000, that would still save you about $2,900.

If you’re in a higher income tax bracket, the savings are increased.

I worked for three years while I was in high school. I learned a lot and had fun. I was fortunate to mostly work as a radio announcer for at least 40 hours a week while going to college. That was an easy job I enjoyed. I remember how Bob Stoddard, who owned a radio station in Reno, rearranged the hours others worked so I could work evenings and weekends.

Hiring your child may be a benefit to the child and save the sole owner business taxes. That’s about as good as it gets.

Did you hear? “I’ve learned that making a ‘living’ is not the same thing as making a life,” by Maya Angelou.

John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.


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