Hire Your Kids To Save THOUSANDS In Taxes... Here's How

Welcome to a video about paying your most important employees and those are your children and when your best tax write offs. Now this can be a complex topic, but I'm going to give you a blueprint that you can use as a starting point to paying your kids under age 18 and 18 and older. I've been doing this for years. I'm a cpa, a tax lawyer, author, speaker on this topic around the country. And I love to help people save money, save taxes and really pass on family legacy. Getting your kids on payroll can be one of the most important tax strategies to build wealth, save taxes and leave a legacy. Now the problem is a lot of business owners don't even know how to do this. And regrettably there's a lot of tax professionals out there that aren't familiar with the strategies to make this happen and make it audit proof. Folks, I've cracked the code on this. We've had thousands and thousands of clients over the years implement this properly as I have done myself. And so we're going to break this down, we're going to get on the whiteboard and, and we're going to kick some butt and we're going to make sure this works for you. Now before we get to paying the kids under age 18 and those kids that are 18 and older, let's get into some general concepts and a list of reasons of why we're doing this and why it just makes sense. What's going to move the needle here? Now the concept is really quite fascinating. So many parents, and I did it for a few years until I caught the vision myself is we claim all of our income, take write offs and then we take whatever's left, pay taxes is sometimes the highest rate and then give our kids money. And the kids use it for any like music lessons, sports clothes, school lunch and then older cars, college, whatever. And we're paying taxes and just giving them money. We need to change the dynamic and put them on the payroll either outside Labor, W2, 1099, we'll get to that. We're going to put them on the payroll. Now we get a write off up here before paying these enormous amounts of taxes. And then the kids, they may pay no tax at all or they're being at least in a lower tax rate. So what we're doing is shifting those expenses above the line and it's huge. Now a few reasons why I just, I love this list. It motivates me to carry through with these action items. The first thing is I'm hoping to teach the kids Some work ethic. I want to teach them about life. I want to get them involved in learning about entrepreneurship. So many kids launch out of high school and they have no concept of money or checkbooks or business. How to talk to someone face to face and close a sale or take care of a customer. They've just been on their phones their whole time. And we want to help them launch into society, learning important business principles and communication styles. And you can be their most important mentor through this process. I've had clients that have set up businesses just so they could hire their kids. And then once the kids were out of the house, they were like, I'm done with that business. That was their incubator of teaching kids how to adult. It is so important in our society now that we have that opportunity to teach our kids principles, they may not ever learn otherwise. Also, sometimes in our business, we need some help. There's little things like, why am I paying a janitor when I could be paying my kids to do this? I grew up as my dad's janitor. He had three offices. Twice a week, during the week, and on Saturdays, my mom would load us up, three kids and we'd go clean the office. Now, I hope my dad got a good tax write off for that. I never asked him about that. But we were learning how to work. We would paint, we would clean, we would work in the yard, the landscaping of these buildings and rental properties. And it was just an incredible experience to work as a family and learn principles of hard work. And my parents needed the help anyway, and they saved money by employing the kids or at least putting us to work. Now, another point that I love is that of the board of directors, the board of advisors, we want to legitimize our companies. We want these companies to look legit if we were ever in a lawsuit or an audit. Well, putting your kids on the board of advisors, if you're an LLC or board of directors, if you're a corporation, which any small business owner can do. We set up thousands of entities every year in our law firm and do this for our clients. So many services online, they don't even ask that question. So we want our kids on the board, which can justify paying them for what they're doing and for what they're receiving. But it also legitimizes the company and shows that we were treating the corporate veil properly by respecting the company, doing annual minutes, having a board of directors retreat with our family. How cool does that sound? Now let's talk duties and legitimizing this, we need to make it legit. And I want to see kids helping out in a variety of ways. Just like janitorial, they could be doing social media, they could be doing video like this. My son, who's now 29, started to age 14 shooting video for me and he was out there with his camera and then helping edit the videos. He was my first videographer. I had my daughters help me on social media. I have a daughter right now working at the office today helping with continuing education credits and she's now 21 and amazing. These kids love to be in the business, helping out. So let's think of all the duties that they could be doing to help us get that write off and make it legit. Now, before we switch to the whiteboard and I'm going there right now, I need to warn you, this can seem very technical and complex and frankly, tax strategies and numbers are that way. But, but once you understand the process, it unlocks the whole strategy and it's not that big a deal. Now I'm giving you a 30,000 foot view here too of how this is going to look. But in my training programs and my books and so much information, I really dive deep and you'll be able to get that additional training and content, maybe even a consult with one of my tax lawyers, an affordable consultation with a tax lawyer that is going to help you carry this across the finish line. And you professionals out there, oh, you're going to love my training program where I teach you every little piece. All right, so I've got to teach you first about the trifecta. Now the, the trifecta is the visual representation of making this work so quickly. Here the trifecta is where we put our operations on one side, our assets on the other and then at the bottom is our revocable living trust or our tax return. All the money runs downhill and all the write offs run downhill into our 1040. Also, we want all the ownership to run down to our revocable living trust, which we can use for privacy and estate planning and legacy building. A topic for another day. So in this, a typical example, it's think of a realtor. A realtor might be here with a little S corporation, then over here they have their rental property. And so these two sides of the equation represent the trifecta. So a realtor that might have a 12 year old at home, boy or girl, and they're going to start helping them learn these concepts and we're going to put them on the payroll, we're going to Have a strategy of paying these kids out of here and then use the rental income over here to create passive income and build wealth. That's going to be where this trifecta starts to come alive. And I've got so many videos and so much training on how this trifecta evolves and grows with a family. And the kids are just one piece of this equation. So let's now turn to these kids under age 18. What are our options here? And again, this is just kind of a larger overview of how this might look in your situation. And this is how the trifecta starts to evolve. If I've got children under age 18, I might have a little side hustle, a little LLC. In fact, I might even have a little sole proprietorship. In fact, I'm going to make that with little dashes because we don't have a formal entity yet. So we're going to make little dashes here. And this could be a sole prop. Then I might have converted or evolved to an S corporation, which is typically what 90% of my small business owners operate as because it's incredible for tax savings. Be careful of the C Corp topic for another day. Then over here you might have that rental property llc. So where am I going to pay my kids? Well, you have all sorts of options. First one is you might just pay them directly out of your side hustle if they're under age 18. We're going to put this on the schedule C and the schedule C is where we're going to pay the kids, called outside labor. No W2, no 1099. Do not let your tax professional think that a W2 or 1099 is the right thing to do with the kids under 18. It is a train wreck. So more on that as we dive into the details down the road. Now for those clients that have an S corporation, you can't pay kids directly out of a corporation because corporations don't have kids. It's a corporation. So once you take your LLC and convert to an S Corp, we have to add this little baby right here. This is going to be a family support company. Think of it like a janitorial company, a cleaning company, a painting company. It's just going to be a little schedule C. We don't have to have it formally as an llc. And this is where I'm going to pay the kids under age 18 funded through a management fee from the S Corp. So we're going to do a little management fee for these outside services and take a write off in the S Corp. Claim it as income here and then pay it out to the kids here and zero it out. Voila. Now let's just do an example here. So when my four kids were under age 18, I might have ended up paying them out of my pocket 17, $18,000 to just pay for all of their stuff. But if I could take a tax write off, how much more powerful would have that been? Maybe I was paying my son, 6, and my twin girl, 4, and Molly 2. So I'd be at $16,000 here, right? Oof. Wow. 16 grand. Well, I'd pay a management fee for 16 grand for these outside services. Pay the kids outside labor. No W2, no FICA, no withholding. It's a law that's on the books, very legitimate. And then I zero it out. So I get a tax write off for paying the kids. And since all of them are under the standard deduction, they pay no taxes, they don't even have to file a tax return. Want to go next level? Now they could take that money and fund a Roth ira. And that Roth IRA could buy crypto. It could even invest in another LLC where we go buy real estate. Now I'm building college savings and retirement funds through a retirement account and I got a tax write off to do it. Bam. Pretty cool. Oh, and this little LLC off to the side, I could pay the kids over here too. And the only time I need to use this family support company is when I have an S corporation. It's just an added step and it's no big deal. I've got thousands of clients that have been doing this for years, and I have never, ever, ever in 25 years had a client audited for paying their kids. It's the American way. The New York City deli, paying their kids after school. The Oklahoma farm, paying them on the wheat field, The Idaho farm, paying them at the potato out in the potato farm. Or it could be in San Diego, renting bikes on the streets or by the beach. And the family enterprise. Business owners use their kids all the time. We need to pay them. And if they make under a certain amount, they don't even have to pay taxes. Now let's go over to the kids 18 and older. Ooh. Okay, 18 and older. This is going to look a little different. And let's go back to our diagram. And we're not going to need this management company in the middle anymore, but let's leave it there just for visual. And let's say we have an llc or we have an S Corp, or we over here we have our llc. So we're building our assets up side, we've got our operations over here. We're implementing the S Corp strategy. All these goodies when kids turn 18, at that point, bare minimum, we want to be adding them to the board of directors. A board of advisors here, a board of directors here, maybe a board of advisors here. And we're having regular meetings. We're teaching the kids about finances and business and entrepreneurship. And then when the kids start helping in the business, they're going to get a 1099. That's how it works. Now if the kids are working in the business rank and file, and they look like an employee, act like an employee, smell like an employee, they're doing the other things your other employees are doing, then we need to issue a W2. You can't play games with this. If they're truly a subcontractor, fine, we can 1099. But if not, they're going to get a W2. Now examples of this might be kids that are helping again with social media or sales or marketing while they're at college doing research and maybe helping find possible vendors or customers or clients. And they're helping the business from afar. And the they're serving on the board of directors. Well, you would issue them a 1099 when they come back to the company for a meeting, maybe in November around a turkey dinner or Christmas time because they had to come home to meet with the vendor they work for. So now we're taking a write off for maybe travel experiences on our board meeting times. And they're getting a 1099 for all this. In fact, one of the jokes in my house is so fun. Christmas time, I just love it. You know, the kids are coming down to the Christmas tree and they're going to look at their what's in their stocking. And every Christmas the kids go to their stocking and yep, right on top is a 1099. They love it. They play with it for hours. And then it has another gift around April 15th when they file a tax return. But the beauty of this is, the real beauty of this is kids are learning to adult. I got to file a tax return. Yeah. Welcome to America. So you're teaching them how they earn money. They're having to work with you and learn about finances, turn around, file a tax return. Oh, then it opens all sorts of doors. Not only this retirement plan stuff that we talked about. All the kids should be having an IRA and building their retirement at the same time. Roth or traditional. But now we Unlock building credit. Now they have a tax return so they can go out and buy their own house someday. They can sign on leases, they can buy a car. We can start helping them launch because we're building a financial profile. How interesting is that? We're actually helping them act responsibly as an adult. The cool thing too is it opens the door for better health care planning. Your kid can get better health insurance under Obamacare or the ACA than you could get. And so it's just crazy. The of course Congress and the insurance companies got together and lobbied, said, hey, you can leave your kids on your insurance plan until they're age 26. What? I don't want them on my plan until I'm 26. I need them adulting. They can go apply for their own insurance, get better insurance, cheaper insurance, because now they have a financial profile. I want to have see all my clients get their kids off their health care and off on their own tax returns with their own credit, building their own wealth, learning how to be an entrepreneur. Now, before I wrap up and we talk a little bit about parents, grandchildren, nieces, nephews, we got the whole family in the game. I want to just remind you, don't be overwhelmed. Don't feel like you have to do this yourself. If your tax advisor is not talking to you about this or you bring it up and they're like, oh, that's too aggressive and we're not going to do that. You have the wrong advisor. You can get to my website and look at my network of tax advisors around the country. You may be a tax advisor, like I got to learn this and oh, you have 80 other strategies too, Mark. I want to certify hook me up because I want to help advisors get more clients and learn the techniques that are street smart tax strategies. This is your chance to elevate to tax advisor status when you understand what you can really do with a client to move the needle, actually save them taxes. And these are legitimate strategies that work across the board. You can do this. So just know there's more to learn and there's more I have for you on the details of this as you get more engaged in the process. So you grandparents out there, there's a workaround because you can't actually pay your grandkids directly without withholding and skipping the 1099 or W2. What you have to do is involve your kids in the process. This is actually a diagram in my tax and legal playbook. You can get on Amazon, by the way. Little shameless plug so grandparents, what you can do is 1099 your kids who hire your grandchildren in the overall family business. You're using your kids who serve on the board of directors. Maybe they're in their 30s, but they're helping you succeed with your rental portfolio, your business. And they're involving the grandchildren as their supervisors to help you accomplish building and scaling your business. So we can pay the grandchildren through the children in an honest, ethical way. That is audit proof and it gives you an incredible tax drive. And now we're building Roth IRAs for the grandchildren as well. Now, if you're helping nieces and nephews, we can send them out 1099s, get them involved in the business, helping out, building the business. And we could even 1099 our parents, parents that may be providing property management at a far off location or helping on the board of advisors or the board of directors and helping them build their retirement further late in life. Now, in summary, some of you might be a little shocked and odd. Some of you might be excited, others you might be frustrated that you didn't learn this sooner. Think about it for a minute. If you would have learned this when you were 16 or 18 years old, where you'd be at financially today, you can stop that cycle of events and teach your children about financial literacy and small business and saving and growing. All a part of the plan. With your current business right now, getting those kids on payroll and saving taxes, this is akin to like learning how to drive. We've got to make sure all of the our children learn how to drive and are able to transport themselves an adult and learn how to drive safely and everything that's involved with that. But do we take the time to teach them about all these financial matters that are just as critical to success in life, Teaching them how to save, how to stay up out of debt, how to build wealth and use our business as the incubator, showing them how hard it is at times, being transparent, having those conversations around the dinner table, taking them on retreats for board meetings. This has changed the lives of so many of my clients. I see people come to my workshops constantly, just in tears, come in upon hugging me, saying, you brought my family together, folks. Take some action. Get involved now. If you're a business owner, there is so much you can do with your own personal trifecta plan. For as little as 1500 bucks, you can meet with a real tax lawyer with attorney client privilege with you on a zoom call, building a plan for this year into the future. Now for you tax advisors You've got to check out my Certified tax advisor program. 80 different strategies, all the CE you need, semiannual conferences, weekly trainings. And you get to be a part of my Certified Pro Network where other viewers of all my content, my podcasts and my videos are looking for advisors just like you. And I want them to meet you. Please check it out. The links are below. Folks, the American Dream is real. It's alive and well. It's there for the taking. And you don't have to be frustrated any longer. I've got the tools that are going to help you succeed.