In this brief summary, Matt Blocki from EWA discusses five tax tips for business owners to optimize their tax efficiency. One of these tips involves hiring your children under the age of 18, having them perform documented work in the business, and paying them up to $12,550 (in 2021), which can help avoid payroll taxes and income tax on their earnings. This strategy can result in significant tax savings and is legal when proper documentation is maintained. It’s a tax-efficient way to retain wealth within the family while minimizing tax liabilities. Matt concludes by encouraging viewers to reach out if they have any questions about these tax planning tips.
Hi, I’m Matt Blocki with EWA. Today we are talking about five tax tips if you’re a business owner. So as a business owner, I’m sure you’re aware you pay your fair share in taxes. And as a business owner, there are ways to be as tax efficient as possible.
So we’re gonna be talking about some common tips and tactics and then also some things that you may have not heard about. Okay, our fourth tip is hiring your children in your business if a certain requirements are met. So the first requirement is your children have to be under the age of 18, the 18 years old or less.
The second thing is they actually have to be doing work. You have to document that work. And then you can pay up to $12 ,550 currently in 2021. And this would avoid payroll taxes such as social security and Medicare. And then this would also avoid income tax on their behalf as well.
So just hypothetically, if you had a child and they went on your payroll, you’re paying them $10 ,000. It goes to your kid. Then your kid agrees to fund that in the 529 plan. That costs you zero in federal, zero in social security, zero in Medicare taxes to fund.
If otherwise this money was going through your payroll at the 37%, assuming you’re in the highest tax bracket, that would have cost you $3 ,700. So just to keep the math simple, per child that you put on payroll, again, up to $12 ,550 per year, that money can be paid to them tax -free.
They can keep the money or they could agree to fund it into their college account, which maybe you were already planning on funding. But again, that would be a $3 ,700 tax savings if it was otherwise getting paid to you at the highest tax bracket.
So that could be per kid. Again, obviously a very high audit risk, completely legal as long as your kids are actually doing work, so you need to document what type of work are they doing? Are they modeling?
Are they doing pictures for your website? Are they actually helping do some administrative tasks such as filing or shredding paperwork, et cetera? But definitely a very tax -efficient method for keeping wealth in your family and lessen the IRS’s pockets.
These are our five tips for tax planning. Please reach out if you have any questions.