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Editor Note: Get your finance intact is
important and required accumulative experience. Our ezine not
only works on this area for you but also tax savings. Save
tax bill by using strategies (loopholes) could be a great way to
earn and keep more. This month our ezine will lower your tax by
thousands of dollars if you apply the
following way: Save on taxes by
putting your children to work. If you
are not sole-proprietorship and your situation does not
apply, soon you will find what work for you with our coming
issues. Enjoy reading and reduce your tax as much as you
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Important
Dates:
January 31 2006 Federal
and State Employment Tax Due (Forms 941 & DE-6)
W-2,
Sales Tax
February 28 2006 Form
1099Misc Income Due To Independent Contractors
April 15 2006 Income Tax Due Sole Proprietorships & Partnerships
April 31 2006 Federal
and State Employment Tax Due (Forms 941 & DE-6)
Sales Tax
July 31
2006 Federal and
State Employment Tax Due (Forms 941 & DE-6)
Sales Tax
October 31
2006 Federal and State Employment Tax Due
(Forms 941 & DE-6)
Sales
Tax
CONTENTS
_Publisher's Article:
*****
Save on taxes by putting your children to work
_Market's New
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Feature
Article:
Save on taxes by putting your
children to work
Do you
run a business in which your children can help out? Paying
them
wages for the work they do can teach them many good lessons,
help them
put aside money, and can save you taxes at the same time.
How
does it
work?
In
order for your business to get a deduction for wages paid to
your
children, they must actually render services to the business.
Because
the IRS is likely to look closely at family relationships
in the
event of an audit, you should document that your children,
actually
perform the services for which they are paid, and that the
work is
necessary for the business. Even a relatively young child
can
productively provide certain services, such as answering
the
telephone, or performing simple secretarial or clerical
tasks.
The wages that you pay them must be "reasonable;" that
is,
age-appropriate and not more than the going rate for
unrelated
employees who perform comparable work. In general, you
have
to treat your children the same as other employees by
keeping
records showing amounts paid and hours
worked.
Cont'
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Do you
run a business in which your children can help out? Paying
them
wages for the work they do can teach them many good lessons,
help
them put aside money, and can save you taxes at the same time.
How
does it work?
In
order for your business to get a deduction for wages paid to
your
children, they must actually render services to the business.
Because
the IRS is likely to look closely at family relationships
in the
event of an audit, you should document that your children,
actually
perform the services for which they are paid, and that the
work is
necessary for the business. Even a relatively young child
can
productively provide certain services, such as answering
the
telephone, or performing simple secretarial or clerical
tasks.
The wages that you pay them must be "reasonable;" that
is,
age-appropriate and not more than the going rate for
unrelated
employees who perform comparable work. In general, you
have
to treat your children the same as other employees by
keeping
records showing amounts paid and hours worked.
Con't
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No social security
tax for certain entities. If you conduct
business as a sole
proprietorship or as a husband-and-wife
partnership, the wages paid
to your under-age-18 child
are not subject to Social Security and
Medicare taxes
that aggregate 15.30% (7.65% for both employer
and
employee). If the business is incorporated, or if you
have a
partnership with a partner other than your
spouse, this break is
not available.
Leverage the payments with retirement
accounts. Each year,
your child can put as much as $3,000 (for
2002) of his or
her wages into a regular or a Roth Individual
Retirement
Account (IRA). The "above-the-line" deduction for a
regular
IRA may not be worthwhile, since the child's tax bracket is
likely to be low. However, although the child gets no
deduction
for a Roth contribution, those Roth contributions will
grow
without being taxed and can be withdrawn by the child
at
any time, though the earnings will be subject to a
penalty,
if withdrawn before age [59.sup.1/2] Early
retirement contributions
by a child are a powerful
tax-deferred way to build wealth over
time.
Preserving the dependency exemption. Even if
you pay wages
to your child, you still are eligible to take an
exemption for
him or her, regardless of how much he or she receives
from earnings
and other sources, as long as you furnish more than
half of his
or her total support for the year. For 2002, the
exemption
amount is $3,000. The exemption may be of limited
benefit,
however, if your exemptions are phased out as a result
of
your income level.
A good opportunity
If your children help you out in your
business, you and they
will both enjoy nontax benefits as well.
Your children learn
the value of earning their own money. Even
more, your children
will have the opportunity to see for
themselves what you do and
it provides a unique way for you to
spend time with each other.
Those nonpecuniary rewards, plus the
multiple tax benefits, make
this a strategy that you do not want to
overlook.
Save on taxes by putting your children to
work.
Source: CPA Client Bulletin: Oct, 2002 issue
Related Topics: Family-owned businesses
Tax deductions
Product Ref.: Tax Deductions & Exemptions