If you own your own business, think about employing your child for the summer. In addition to keeping your student busy learning valuable workplace skills, you’ll reduce your taxes.
Potential Tax Savings
In 2006, a dependent child can earn up to $5,150 tax free because of the standard deduction. You, of course, deduct the wages from your business income, saving yourself both income and self-employment taxes. And, if your business is not incorporated, you won’t have to withhold or pay Social Security taxes on your child’s earnings.
Any additional income your child earns over and above the $5,150 standard deduction would be taxed at your child’s tax rate. In 2006, the 10 percent bracket extends to $7,550 for single filers. Your own marginal tax bracket is likely much higher, so the extra money your child earns may result in family tax savings.
Ground Rules
For this strategy to work, the wages you pay your child must be for bona fide work done in connection with your trade or business. Observe the labor laws, and be sure the amount you pay is reasonable relative to the time your child spends working and the tasks performed.
For more information please call Theresa Stewart at 661-775-9534.