How music lessons and video games saved me $2,051 on taxes.
It’s actually quite simple…
Your kids have hobbies. They could be into music, video games, sports, dance, debate club, or a thousand other things.
Those things usually cost a lot of money. Money that usually comes out of your pocket.
Savvy business owners have figured out a totally legitimate way of letting their business pay for these expenses so they get to deduct these costs.
In truth you cannot deduct these things on your taxes. That would be against the law.
However, if you were to hire your kids to to work for you as employees then you can pay them wages that you can deduct legally. Then you simply make your kids pay for their activities themselves.
The end result is the same! You deducted the equivalent of those non-deductible things.
Sound sneaky? It’s not. The IRS and Canadian Revenue agencies are totally cool with the strategy as long as you follow the rules.
To prove my point I here are the costs for a few activities:
- One year of dance lessons: $3,420
- One year of music lessons: $2,200
- 4 video games @ $60 each: $240
If you paid your child $5,860 they could pay for this themselves!
Bonus: If your child is under 18 years old then they don’t have to pay Social Security or Medicare. So you get to deduct the $5,860 as wages and your child reports the same amount on their tax return but because they get a standard deduction which covers that income.
If you were in the 35% tax bracket then you would save $2,051 in taxes! Yahoo!
If you have kids, grandkids, or any other relative that rely on you to cover the costs of their extra curricular activities you might consider hiring them in your business.
We have put together a downloadable document called The Ultimate 5-Minute Guide to Hiring Your Kids
It goes through all the frequently asked questions that are probably running through you head. Questions like:
- How old do my kids have to be?
- What kind of work can they do for me if they are young and unskilled?
- What do I need to do to stay IRS and Canadian Revenue Agency compliant?
- Do I have to hire as an employee or can I do it as an independent contractor?
The basic rules are these…
- The kids must do legitimate work for your business
- Their wages must be reasonable (don’t pay your 16 year old $50/hour to do manual labor that could be hired out for $12/hour)
- They must keep time sheets (and you must save these time sheets in case of an audit)
- You must hire them as actual employees. You should not hire them as independent contractors
- You should talk to your tax professional to make sure that you have met the requirements we have set forth
- There is case law that says you can hire your kids as young as 7 years old as long as it is helpful to your business and it is legitimate work
Download the guide to get these questions and more answered. Click here to get The Ultimate 5-Minute Guide to Hiring Your Kids now while it’s on your mind.
Download here The Ultimate 5-Minute Guide to Hiring Your Kids
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