Are you looking for a new way to reduce your business taxes?
I mean, as a business owner who isn’t looking to reduce their tax liability…right?
Did you know that one of the best ways to reduce your business taxes is by hiring family members?
It’s one of the smartest tax moves you can make for your business.
By doing so, you can take advantage of a number of tax breaks that can put more money back in your pocket.
And while there may be some added complexity when it comes to managing family dynamics, the potential tax savings are well worth it!
What Are Some Of The Benefits Of Hiring Family Members?
One of the biggest benefits of hiring family members, such as children or spouses, is they can be paid less than other employees, and you can deduct their wages as a business expense.
Let’s see how!
Hiring Your Children:
Under the new tax laws, you can hire your children and pay them up to $1,000 a month for a yearly wage of $12,000.00. This is the standard deduction amount allowed for single individuals.
Your child then files their own tax return. Since they only made $12,000, they don’t have to pay federal income taxes.
Because the standard deduction is $12,000.00 making their taxable income ZERO!
Your business then gets to take a deduction for this payment, which decreases your taxable income.
AND as an owner of a single-member LLC, you don’t have to pay payroll taxes for employing your children.
This is great news because it means less paperwork (hooray) and complexity!
Hiring Your Spouse:
Hiring your spouse is another great tax strategy.
When you’re the sole proprietor of a business, you’re taxed on your business income as personal income.
However, if you hire your spouse and pay them a salary, you can deduct that salary from your business income, which will reduce the amount of taxes you owe.
You can also take advantage of the “married filing jointly” status, which often results in a lower tax bill.
Additionally, hiring your spouse can allow you to take advantage of certain deductions and credits that are not available to unmarried business owners.
For example, the “spousal IRA” deduction allows you to make an annual contribution of up to $5,500 (or $6,500 if you’re over age 50) to an individual retirement account for your spouse.
This can be a valuable way to boost your retirement savings while also reducing your taxable income.
All of these things can help to REDUCE your overall taxable income, which can ultimately SAVE you money at tax time.
So If you’re looking for a tax-saving strategy, consider hiring your family members.
Not only will it help reduce your taxes, but it also provides an opportunity for family bonding and team building.
It’s a win-win situation for everyone involved.
To learn more about how hiring family members can be a good tax strategy for your business, reach out today!