Hey Mark Kohler here and I got an important topic to talk about do you have children you own a small business?
do you think you can integrate the two of those and save a ton in taxes and
Maybe teach your kids about entrepreneurship at the same time. Well, we got to talk about putting your kids on payroll
I got my white board here. We're gonna break down and you're gonna love it
Now before I go to the whiteboard, let me make a few important points first, this is legitimate
It's legitimate if you truly have job duties for your children
and they are participating in the business not just washing dishes and cleaning the room and that you could document things like
janitorial shredding paper
stuffing envelopes
Helping at the worksite
Even, you know just running errands. So this is a very important
Tax strategy if you treat it legitimately. I don't want this to be some sort of tax scam or sham now
This has been on the books for years. This is a very common strategy
Think of the New York City Deli paying their kids working behind the counter even eighty years ago or in the Oklahoma City Farm
Paying their kids on the farm in the summer and this could be you and your real estate or internet business help having your kids
Help you around the office. So make sure you have clear duties legitimate services
Your kids are providing and paying them a fair amount
which is another topic which I want to give out of the way is that you're not gonna pay a
Five-year-old, you know several thousand dollars to help in the business
Maybe it's $100 a month to a six or seven year old to
Empty trash and shred paper or something like that the older they get the more you can pay him and I have teenagers that can
Make $10,000 or more helping in a business in the summer throughout the year
So you want to think about their duties and how much you're paying them before you start going through the procedures?
All right. Let's go to the whiteboard. Now. This is a huge topic and I'm just gonna hit the highlights
I've got more in-depth videos on my website and my tax and legal library
Where I go through all sorts of strategies where there's auto or health care dining and Home Office in pain kids over age 18
20 30 minute videos where I go in-depth very affordable and it'll save you thousands
So if you want more just click down below and check it out now also in 2018
The rules changed because of the standard deduction amount now this is important for those that have watched my videos before
there's a new rule for 2018 that we're gonna play into this now again a
Under age 18 not the simple here of 18 or under it's 17 or under
Under age 18, right symbol, correct, and now there's three ways to pull this up
Again, generally you have your sole proprietorship or LLC
You might have an LLC over here holding real estate again on all my diagrams in videos. You'll see
Operations are over here holdings are over here
So for some of you that have a day job and just rental property
You might pay the kids directly out of an LLC that holds your rentals
For those that I've just kind of a small business on the side
You may pay your kids directly out of a sole proprietorship. You're gonna call it outside labor
You're not gonna give them a w-2 you're not gonna give them a 1099
That'll screw it up and cause problems with the IRS
The reason why you don't have to issue a w-2 is because you're not withholding sudha food a FICA
so there's no employment taxes to withhold and the penalty for not issuing to w-2 is a
proportion of the taxes that were to be withheld
well, there are no taxes to be withheld so you accountants out there that think oh circularly you got to issue a w-2
No, it's fine
And I've had we've been doing this for fifteen years, and I've had conversations with countless
IRS agents and all sorts of scenarios where they're like, oh you're paying the kids outside labor under age 18 done
so if they're your children under age 18
There's no w2 no 1099 just outside labor
Now for those of you that have an S corporation, which is where most of my clients are because of the salary Bicas savings
Here, you're not gonna pay your kids directly out of an S corp
This is where we start to use what I call the family management company. Just kind of a support company
That's a sole proprietorship and you would pay a management fee down here in just on line transfers are fine
Theoretically your 1099 in a little sole proprietorship that's going to provide janitorial marketing in an office support
And then this is where you pay the kids
So if my daughter Molly who's 15 says dad, I need a hundred dollars to go pay for soccer
This this summer then I'll I'm not gonna pay for soccer. I'm gonna transfer money down here and let her pay for soccer
See the whole goal here is quit paying taxes and then giving money to your kids and helping them at any age
Put them on the payroll and let them pay for their own expenses. You don't have to be rich to do this
Just change the way you're transferring money to your kids
I take two steps to count down to Molly's personal debit card. All the kids need their own bank accounts and debit cards
these are your kids on again under age 18 watch my other video on 18 and over and
We're gonna pay the kids through a two-step process. We pay the sole proprietorship and then do an online transfer to their account here
Now here's where the rules changed in 2018
Previously, we would tell clients. Don't pay your kids more than $6,000
you might start at
$100 a month or a thousand a year for your 6 or 7 year olds and then as they go through junior high in high
school you might pay them closer to
$500 a month or more. It's a help in the business after school and in the summers
so a total of maybe
$6,000 because that's their standard deduction and they don't even have to file a tax return if you pay them less than the standard deduction
See that did you catch that?
You get our tax write-off
You don't withhold any payroll taxes and your kids don't even file a tax return if it's under 6 grand
That was the old rule. Well now the standard deduction is
$12,000 now for those of you that have teenagers that are providing legitimate services that could get paid more than $6,000
Remember you got to be able to substantiate that you could literally pay your kids up to
$12,000 you've got 3 teenagers
what that's like
$36,000 as a tax write-off
To pay them for helping in the business and then they're gonna pay for their own school clothes school lunch or college savings
now last point because again, I'm just hitting highlights is
Could the kids then if they have Earned Income Fund an IRA a Roth IRA or a traditional IRA?
Absolutely. So now the kids are funding their own retirement account with earned income that you got a tax deduction to give that for and
Then they get to be a partner in your next LLC with their self-directed IRA
Would you catch that you get a tax write-off to pay your kids for money
We're going to give them anyway
And then you can take a portion of that fund an IRA and then their IRA could be a partner in your next project
Watch my videos on
Self-directed IRAs and LLC's. So this just blows up
It's so amazing blows up in a good way because you can get your kids involved in your business teach
entrepreneurship get good tax write-offs build wealth for
College or retirement and just really change the lives of your family in a dynamic way in summary
Do not discount this strategy if your accountant isn't talking about getting your kids on payroll. You got the wrong account
I understand the rules, please study the videos on my website my blog my books
I've got more
content on this than you can
absorb
And even just an hour - you're gonna love it and it's gonna help you save thousands of dollars and better live your American dream
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