Josh Bath, Medicare, IRA discussed on Entrepreneur on FIRE
The smartest way to hire our I fire nation. We are back. And I'm going to pass the mic over to Josh Bath. Hourly who's going to be dropping some unbelievable knowledge about paying your kids and fire nation. Even if you don't have kids there's some knowledge in here for you but but don't go anywhere no matter what because as I teased in the intro myself and Caitlyn be talking about an amazing challenge we want to do with as many of you fire nation as are are willing. There's going to be prizes. It's going to be contest is going to be giveaways so much more so stick around to hear how you can be a part of that in the upcoming weeks Josh. Gosh take it away so John. Last month we talked about the possibility of paying your spouse as an employee in Your Business and it was a great question from podcast Castro Paradise member and this month we had a great follow up question from podcasters paradise member asking. What about paying your kids from the business and for those who've listened to last month tip read last month tip you saw that there are only a few cases where paying your spouse made sense strictly from a tax perspective and it typically only makes sense if you wanted to contribute to their retirement account? Meaning you already Max out your retirement account you still have more money to contribute you want to contribute beat here spouses in which case giving them payroll will allow you to do that. Otherwise you're probably going to spend more in taxes than than any money you would possibly save but foot pain. Your kids could present a significantly larger opportunity to save money on taxes for several different reasons. I if your child is under the the age of eighteen and your business owned solely by you and or your spouse meaning they had had no has no other owners except you and your husband or wife Right. If that's that's the case they're under eighteen years of the owners. You do not have to withhold social security and Medicare taxes on their wages so those payroll taxes that everyone has to pay. Even you have to pay roane salary. Fifteen point two percent completely wiped out in that scenario if your kids under eighteen you guys are the only owners. That's a huge advantage right from the start. Furthermore furthermore if you pay them less than their standard deduction which is twelve thousand two hundred dollars for two thousand nineteen they will. Oh no taxes whatsoever on that money okay. So they'll will that. The standard deduction will wipe out their wages. They'll oh no taxes they'll oh no payroll taxes and then finally you're GonNa get to deduct that amount paid from your business us all right. So essentially you're taking up to twelve thousand two hundred dollars per kid from your business paying it to them and wiping off of your taxable income with no taxes to them and I know this is probably seems too good to be true. I'm not too good to be true. But as with any good tax strategy Eh. There are several things you have to make sure you're doing right and the first thing is you have to make sure that they are getting paid the proper amount based on their age type of work they're doing etc if you have a two year old you can't go out and pay them twelve thousand dollars say that they're cleaning your office or the IRS has commonsense wants to know that you did not that no two year olds GonNa Make Thousand Dollars Not GonNa pay clean your office look at their age typically you want them to be seven under older before you start doing this. There could be scenarios if you're going to try and count them out as a model or something with that gets very dangerous. Make sure that they are actually working. That what you're paying them is reasonable for the job. They're doing and make sure that you're documenting all this all right so if you kids fourteen and you're having him clean your office for you once a week and you say that's where twelve thousand dollars. Well just be sure that the twelve thousand dollars is the going rate to clean your office once a week for anybody else okay. Okay so make sure. It's reasonable the second thing you have to watch what type of entity your businesses because if your taxes an S. corporation which most profitable small businesses are then. You will have to set up a few other things to be able to waive those Medicare taxes social security taxes are. You can't pay them directly from the escort because that feature does not apply to escorts so what a lot of people do is create some type of management company that is an LLC. A escort pays yellow. See which kids it sounds complicated. It's worth Earth if you're going to pay your kids a decent amount of money but you have to hire a tax professional. Maybe even attorney to make sure it's done properly and finally need to make sure that everything is done properly as far as paying in your kids. Okay so including filling out those payroll tax returns and I know you're probably thinking. Why do I have to do that? You just said I don't have to pay taxes you still have to file the payroll tax returns. Turns so if you don't already you're going to want to hire an actual payroll company to do this. We always recommend our clients. He's Gusto online super easy of use but any of them will work. You have to make sure that they understand that these are your kids. They're under eighteen. And that you were the only owners. So they qualify for not withholding payroll taxes. But if you do that they'll be able to take care of everything else. All the proper forms will be filed to me. This is not something you want to try to yourself. You're gonNA miss something and you're going to jeopardize the whole move and probably cost yourself more than you save all right so those are the three things. Make sure you're paying them a reasonable wage. Make sure you're doing it properly based on your entity and make sure everything's filed properly. If you do those three things things and you have kids under eighteen you can have a significant tax savings opportunity here. And what's more your kids now have earned income so you can turn around and put that into a roth. Ira You can put that into a five twenty nine for the future. College needs okay. So you're paying the money you're saving on taxes and your potentially Z.. Creating retirement or college savings for them at a very young age. I mean could you imagine being twelve years old and and someone contributing to a roth. IRA for you through. Throughout your entire childhood be amazing the great headstart this the opportunity you have to do for your kids if you do this properly save taxes for you..