Daniel HonanFounder, Profitable Painter CPA PLLC · I help painting contractors increase profits & cash flow while reducing taxes♦ Bookkeeping ♦ Tax

Discover a tax savings strategy for employing your own children in your painting business.

Name: Discover a tax savings strategy for employing your own children in your painting business.
Uploaded: 2023-08-09T15:10:01+00:00
Duration: 58 s
Channel: Daniel Honan
Description: In this video, the speaker outlines a tax‑saving technique for small‑business owners that involves hiring their own children. The core idea is to shift…

9 Aug 2023 · 1 min

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In this video, the speaker outlines a tax‑saving technique for small‑business owners that involves hiring their own children. The core idea is to shift earnings that would be taxed at the parents' higher marginal rate into the children’s lower tax brackets, taking advantage of the federal standard deduction. For 2023, a single filer’s standard deduction is $13,850, meaning a child can earn that amount tax‑free if the wages are legitimate. The speaker stresses that the children must be paid through a proper payroll system, making the wages subject to payroll taxes, and that the arrangement must be bona‑fide work. He advises first projecting the business’s income and determining the parents’ tax bracket to see if the strategy yields a net benefit, then discussing the plan with a tax professional before implementation.

Chapters

This is a great tax strategy, but it does come with some caveats and you need to know how to deploy it. And that is employing your children in your business. The idea is that we want to shift money that we're earning and that's being taxed at a higher tax bracket over to somebody who has a lower tax bracket. As parents, we are always, uh, giving our kids money in one way or another, so we might as well figure out a way to do it where it is tax advantaged to us. This all kind of comes down to the federal standard deduction. And if you filed your taxes before, you know that a certain amount of money is not taxed right off the bat. They call that the standard deduction. And in 2023, the amount for a single taxpayer is $13,850. So that is the amount that you can earn and you will pay zero federal income tax on that amount. To make the strategy work, you do have to pay your children through payroll. It needs to be legit. That means that their wages are subject to payroll taxes. You definitely want to be aware of what your tax bracket is. Discuss this strategy with my tax planning clients. First thing we're doing is projecting your income and your taxes and knowing exactly what your tax bracket is and knowing whether or not it makes sense.