You may want to pass on your business to your children in the future. One way to train your kids is by hiring them as a legitimate employee of your company. When the right time comes, it will be easier for your children to manage the business because of their early exposure to how it operates.
The Perks of Hiring Your Child
Hiring one of your children, during their summer vacation, can provide you with tax advantages. When you hire your children, their wages will be exempted from Social Security tax, Medicare tax and, federal unemployment (FUTA) tax if they are under 18.
This is ideal if you’re running a business as a sole proprietorship. You can hire your children either as a full-time or a part-time employee. The Tax Cuts and Jobs Act (TCJA) allows the employee-child to use his or her deduction to shelter up to $12,000 of the 2018 wages that your company paid from the federal income tax. This standard deduction is twice higher than in 2017.
The new law exempts your child from owing anything to the Feds for the first $12,000 of wages. Your children can use these wages and contribute them to a Roth IRA or their college fund.
Tech-Savvy Employees are Good for the Organization
Hiring a younger generation can provide several advantages to your business. Research shows that millennials stand out for their technology use. Nearly all of them own smartphones and use social media. They are also likely to adapt to new technology easier than older generations.
And technology plays a crucial role in a business’s growth with newly developed software making process easier. Proper implementation of ServiceNow, for example, can streamline your operations and improve your productivity. This allows your employees to focus on other important tasks.
Younger individuals tend to be intrinsically motivated because a majority of them values personal development in their careers. They are usually eager to learn and grow, regardless of their paychecks.
Additionally, you may discover the creativity of your children when they work in your company. They may provide significant contributions to the growth of the business.
Be Mindful of the Regulations
Before hiring your children to your company, you need to know the legal requirements. You’ll need to fill out an IRS form and complete a W-2, which indicates how much you’ve paid your kid, Employment Eligibility Verification, and you need to get them a Social Security number.
In addition to meeting legal requirements, you also need to make sure that your child is a legitimate employee (that they are performing tasks relevant to your business) and they are compensated appropriately for their work. It’s true that you can get a tax break from paying your child to work for you, but the IRS will make sure that the compensation is reasonable.
For example, you might rethink a $150 per hour fee for your kid if all he does is get everyone in the office coffee.
You have a vision of your children taking over your business someday. Why not prepare them for this future by hiring them now? You not only ease their transition but also benefit from their tech-savvy skills and today’s tax breaks.