So, is hiring your child a good idea if you own a business? I think so! As a money coach, I’m always looking for creative ways to save money for my clients, and hiring your child is a great way to accomplish this objective.
First things first though… ensure you hire them the right way. I was reading a post titled 10 Tips for Hiring Your Child that has some good information about how to hire your child the right way. For example, your child should do actual work for the business (i.e. manage your social media accounts or handle some of your administrative tasks) or perform services that you would hire someone to do for your business (i.e. taking photography for your marketing or modeling for your products or services). You should also pay them a wage that is appropriate for their tasks. And, if you have payroll for your business, you should run their wages through payroll. Finally, don’t forget to file their tax return!
Once you have completed all the appropriate steps for hiring your child, here are three ways to take advantage of their employment in your business:
Tax Savings
In most cases, you end up saving money because you shift money from a higher tax bracket (the parent’s tax bracket) to a lower tax bracket (the child’s tax bracket). This is even more true with the 2018 Tax Reform. When done properly, you end up getting a tax deduction for the business (your child’s wages), that your child can then receive while paying little to no tax. You can then use this money to fund some of your child’s expenses that they would have had to pay anyway.
Fund Education Savings
If you were planning to put money away for your child’s education, then using some of their earnings to fund their 529 Plan and/or Coverdell Savings Account can be a huge benefit. Instead of funding their education with your earnings, you can fund it with their lower income tax bracket earnings!
Fund Roth IRA
Similar to funding education savings, you could use some of your child’s earnings to fund a Roth IRA for them. You are unable to fund a Roth IRA without earned income (in most cases), but because your child is earning an income, this allows them to fund a Roth IRA. If your child were to save only $1,000 at age 5, they would have over $100,000 in their Roth IRA by age 65. Imagine what more than $1,000 saved would look like?
So, there you have it… this is why I believe hiring your child is a good idea. So, what do you think? Do you believe hiring your child is a good idea? What are some other advantages (or disadvantages) of hiring your child? Let us know your thoughts in the comments section below. If you know a business owner who needs personalized guidance with their business finances, have them click here to schedule a complimentary consultation. Or, if they just need some tips on how to save money, have them download our free eBook: Ten Ways to Save $10K.