21 Apr, 2010 | Posted by: photosource



PROFIT FROM PAYING YOUR KIDS. Do your children help out with your business? Could they? A savvy way to take care of their allowances at the expense of the IRS is to pay them wages for work they do. Hiring them keeps income in the family but shifts some out of your higher bracket and into their lower one.

Of course, deductions for their wages stand up under IRS scrutiny only if you treat them as real employees performing real work and receiving reasonable wages — not more than the going rate for unrelated employees performing comparable chores like clerical work or deliveries.

The children are liable for income taxes on their wages. But children’s earnings are offset by their standard deduction — for 2010, $5,700, a figure that’s scheduled to increase in later years.

There’s an additional carrot. Code Section 3121(b)(3)(A) allows you to sidestep Social Security and Medicare taxes on wages paid to under-age-18 sons or daughters, provided you do business as (1) a sole proprietorship (IRS lingo for the lone owner of a full-time or part-time business that’s not formed as a corporation or partnership) or (2) a husband-wife partnership. To put it another way: This exemption doesn’t apply to a family business that’s incorporated or a partnership with a partner other than a spouse.

Write-offs for wages enable self-employeds to save more than just income taxes. They also reduce self-employment taxes owed for 2010 on the first $106,800 of net (receipts minus expenses) earnings.
------------------------------------------------------------------------------------------------------------------------Julian Block, an attorney in Larchmont, N.Y., has been cited as “a leading tax professional” (New York Times) and "an accomplished writer on taxes" (Wall Street Journal). His books include "Savvy Ways For Stock Photographers And Other Freelancers To Trim Taxes To The Legal Minimum," praised by law professor James Edward Maule of Villanova University as "An easy-to-read and well-organized explanation of the tax rules. Photographers writers and artists would be well advised to buy this book.” It is available at www.julianblocktaxexpert.com


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