By Kevin Theissen
Are you a business owner and thought about hiring your child? Well, you should. If you have children, especially teenagers, you should strongly consider putting them to work. The benefits are tremendous.
First and foremost, the main benefit is to help your children develop a strong work ethic. You can teach your child, from a young age, the importance of having a job, having a boss and coworkers, and having responsibilities. They can learn the value (and commitment) of showing up on time, doing what is expected and performing tasks under the supervision of someone else. Getting paid for their commitment and effort helps them understand the value of their time, the value they receive for it and what to do with the compensation.
Your child can earn up to $12,000 per year without paying any taxes. This is assuming that they’re not doing any other work or earning other income. $12,000 is the standard deduction on any tax return, so there is no tax liability — and in most cases, they won’t have to file a tax return.
As the business owner, you may not have to pay taxes. As long as your child is under 18 (and you’re a sole proprietor or LLC) you won’t have to pay any social security or Medicare taxes. However, if you’re an S-Corp or C-Corp, you will have to withhold these taxes, but your child will likely receive them back as a refund. Your business can also take a deduction. It’s a legitimate business expense as long as your child is at a reasonable age and performing reasonable work that someone else would be paid to do. At the same time, you can still claim your child as a dependent or receive the child tax credit if you qualify.
Finally, you get to take advantage of tremendous savings opportunities for them. Your child employee can contribute 100% of their earnings, up to $6,000 per year, into their own Roth IRA. There are few better ways to develop a healthy savings habit, have their money grow tax-free and secure their financial future. The ultimate goal would be to do this every year for many years and would potentially allow your child to retire early, retire comfortably and take a lot of stress out of their financial futures. Other ideas would be to establish giving, spending, saving and education accounts — all of which teach how to understand and handle their earnings — now and into the future.
Time is our most valuable resource. Time spent with our children is priceless. Time is the most important aspect of saving and investing. So, as a business owner, you should strongly consider hiring your children. This will put more time on your side to spend with them — and put time on their side for their financial futures.
Kevin Theissen is the owner and financial advisor of HWC Financial in Ludlow.
