Imagine paying for your 12-year-old’s activities—like sports fees, clothes, and school supplies—and getting a tax deduction. It sounds too good to be true, but it’s not. By setting up a simple business, you can save thousands while teaching your child financial responsibility.
The Strategy
Have you ever wondered if there’s a smarter way to manage the money you’re already spending on your kids? Instead of paying for their activities out of pocket, what if you could pay them for legitimate work through your business?
For example, let’s say you spend $14,000 on your child’s activities annually. What if, instead, you paid your 12-year-old that $14,000 for helping with social media, filing paperwork, or other tasks in your business? This would shift those $14,000 from your tax bracket (say, 30%) to your child’s lower or zero tax bracket. In 2024, children can earn up to $14,600 tax-free, meaning they wouldn’t pay federal taxes on the income, and you could save around $4,200 in taxes.
Wouldn’t you rather keep that money in your pocket while helping your child gain real-world experience and skills?
Don’t Have a Business? No Problem
Setting up a small business is easier than it sounds. You don’t need a massive operation—just a sole proprietorship or LLC from a side hustle can work. Here are some examples of legitimate tasks your child can perform:
- Organizing files or helping with paperwork
- Assisting with social media and marketing
- Cleaning your office or home workspace
- Shredding documents
Just make sure the work is real and the payment reasonable. Proper documentation, such as timesheets and job descriptions, will ensure you remain compliant with IRS rules.
Now, imagine what you could do with the thousands in tax savings each year. Could you reinvest that money into your child’s education or extracurricular activities?
Documentation and Legal Requirements
For children under 18, no W-2 or 1099 is necessary. You can classify their payments as “outside labor,” avoiding payroll taxes like FICA. Simply report the payments on Schedule C if you operate as a sole proprietorship. Ensure your child has a bank account for receiving payments and document their work to maintain legitimacy.
For children 18 and older, you’ll need to issue a W-2 or 1099 and withhold FICA taxes as they are considered adults for tax purposes.
Is it Worth It?
Are you looking for ways to save more on taxes while also preparing your kids for success in life? What if you could accomplish that by paying your child for work they’d be proud to do? This strategy allows you to save thousands each year while covering the same expenses you’re already paying for.
Ready to Take Action?
What’s holding you back from bettering your family’s financial future? Schedule a financial strategy session today, and we’ll help you evaluate what’s ideal for you and your family, so you can start reaping the benefits of this powerful tax-saving strategy!
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