The Benefits of Employing Your Children

The Benefits of Employing Your Children

by Collin Almeida


How many times a week do you hear, "Mom, I need a new pair
of shoes!" or "Dad, can I have money to go to a movie?" Not
to mention the cost of school supplies, braces, and college
tuition that haunt every parent. If you're like the
average parent, you probably spend several thousand dollars
a year providing for all the needs and wants of your
children. But unlike most Americans, if you are a home-based
business owner, you can make those thousands work for you.

The IRS allows you to hire your school-age children as part-
time employees for your business. Then, you pay them a
reasonable salary for their work that is then used to cover
all their expenses. And their salary is completely tax
deductible. Plus, as employees, their medical expenses can
also count as tax deductions.

For example, if you have two children, one age 10 and
another age 17, you can officially and legally hire them to
work for you. Perhaps the ten year old can clean up your
home office or sort mail while the older child could answer
phones, handle filing, or type correspondence. No matter
what responsibilities you elect for your offspring, make
sure to prepare a formal employment agreement between you,
as business owner, and your child. Make sure your
agreement includes a list of duties, the compensation
arrangement, and any special details you want to have in
writing. In addition to the official agreement, you can
create a job title and description for your new "employee".
Not only will this help to audit-proof the deduction, it
will also clearly spell out for your child what his or her
responsibilities are.

There are some restrictions, however. For instance, the
child's yearly income (according to 2001 tax regulations)
can be no more than $4550. Additionally, the pay rate must
be comparable to similar services offered by professionals.
If you are paying your child for vacuuming or dusting, you
should contact cleaning services in your area for a written
estimate and base his or her wage accordingly. Also, the
child must maintain a record of his or her work. The log
must include the date, type of work, time worked, and
hourly rate. The last restriction is that the child must be
paid what he or she earns. So you will need to open
separate checking accounts for the children in which to
deposit their salaries. All the expenses then can be
covered from that account, including entertainment, clothes,
school expenses, or even a car or college tuition.

The IRS also allows all medical benefits provided by a
business to its employees to be claimed as tax deductions,
so if your child is your employee and you have to pay for
his or her braces that hefty expenses can be completely tax
deductible. Even if your child is covered by your spouse's
insurance plan, you can claim all co-payments or non-
covered medical charges. There are no minimum or maximum
levels either: every dollar you pay out can be counted as a
tax deduction. However, your policy for covering these
expenses must be in writing and copies of all receipts and
bills should be maintained for your business records.

Besides the obvious benefits of being able to write-off
these costs, hiring your child as an employee can have
other positive effects. You will save time because of the
additional help your new staff will provide. While they
handle the menial duties, you can concentrate on running a
successful business and earning more money. And with your
children on the staff and on the payroll, they - and your
spouse - will be more likely to support your venture.
There's also no better way to teach your children the value
of money than by having them work for it and get Uncle
Sam to pay for it.

-----------------------------------------------------------------

Discover little known but highly lucrative tax advantages
you can legally claim as a home based business owner by
visiting http://www.homebusinesstaxsecrets.com Get the
FREE REPORT: "5 Hidden Tax Dangers..." that shows you how
to save $1000's in taxes and avoid costly audits.