Employing Your Children

This is a tax break for self- employed taxpayers who are sole proprietorships or single- member limited liability companies.  Your children may help you in your small business now, only being paid an allowance.  If they are fairly compensated for their services, you incur a salary deduction and they will not have to pay taxes on the income if it is less than the personal exemption amount ($3,700 for 2011) and they do not have
other income.  If they are under 18, they are also exempt from Social Security and Medicare withholding if they work for their parent.   If they are under 21, you do not have to pay state or federal unemployment on their wages.
Caution: You must issue a W-2  and file the appropriate payroll forms, even if there is no liability.
Also, you should keep time records, documentation of what services they perform, and make sure the wage is reasonable (not too high).  Bonus:  Since they have earned income,
they will be eligible  to contribute to a Roth IRA.
Contact us with questions http://www.MCcpas.com info@MCcpas.com 913.239.9130
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