Make Your Own Children Millionaires
Warren Buffet has called compounding interest the eighth wonder of the world. As a business owner and parent you have a unique ability to hire your kids.
By depositing children’s wages in a retirement account while they are young, you are giving them the benefit of time. Saving less money earlier is far more valuable than saving much more money later in life.
Find out the legal requirements for family businesses to create multi-millionaire children. Your children will thank you for making these strategic moves early on.
Disclaimer: I am not a tax advisor or tax professional. This article is not intended to replace legal advice or tax guidance. Please seek professional help for your individual situation.
Why You Should Hire Your Kids
Hiring your children in your business can be a good idea. It can lead to tax savings. You might be able to pay them up to $13,850 tax-free, helping your family keep more money.
It’s also a great way to pass down skills. When you hire your kids, they learn about the family business. This can lead to better succession planning in the future.
Giving your children real work builds responsibility and confidence. It also helps them understand the value of money. You are providing them with a head start in the world of work and preparing them for the future.
Working with family also strengthens bonds. You spend more time together, which can improve relationships and create shared memories. This emotional benefit is a big plus for many families.
Hiring your kids can be an excellent decision with numerous benefits for both your family and your business. It’s about more than just the money earned today, but the value of the money at retirement.
Age Appropriate Roles For Your Kids In Your Company
When you hire your kids, ensuring their tasks match their age is important. Younger children can take on simple roles that help them learn basic job skills. For example, cleaning and organizing might suit kids around the age of 5 or 7. These tasks are simple and help them understand responsibility.
Older children and teenagers can handle more complex tasks. They might help with administrative work, like filing documents or entering data into a computer. Involving them in something like marketing gives them an overview of your business operations and might interest those keen on creativity.
You might assign a minor child light tasks, like helping during inventory checks or customer service support. This helps them learn the value of real work and see how different roles contribute to the company. Always match the job descriptions with the child’s age to ensure safety and compliance with laws.
Here’s a simple table to guide you on some possible roles:
| Age Group | Suggested Roles |
|---|---|
| 0 – 4 | Image licensing |
| 5 – 7 | Cleaning, organizing |
| 8 – 10 | Swag creation, marketing efforts |
| 11 – 13 | Filing, inventory checks |
| 14 – 16 | Administrative work, data entry |
| 17+ | Social media, customer service |
Utilizing the services of a child come with many different rules than standard hiring that small business owners might be used to. Remember to follow any age restrictions that apply to employing minors in your area. This helps maintain a legal and ethical workplace.
Financial Benefits Of Hiring Your Kids
Hiring your kids can offer several financial advantages for your business. If your business is a sole proprietorship or a single-member LLC, hiring your children can help lower your self-employment tax bill. You save on payroll taxes, including Social Security and Medicare taxes, both for yourself and your child.
Wages paid to your child can be considered a business expense. This means they reduce your business income. In s corporations and c corporations, paying employee wage expenses helps in cutting down tax burdens. You pay your child’s wages, but they aren’t subject to federal income tax if they stay under the standard deduction limit.
Parents with children under 18 can make additional savings. Your business is exempt from FICA taxes for your child’s wages. Both Social Security and Medicare taxes savings provide ease for families. Your children benefit too, getting real work experience while contributing to family savings.
With these benefits, hiring your kids can be a smart financial move. You manage to cut down on many tax-related outflows while providing your children with valuable skills.
Steps To Legally Hire Your Kids
To hire your kids legally, start by confirming they are doing legitimate work. This means the work they perform is necessary and appropriate for their age. As a parent, you must ensure compliance with labor laws.
Acquire an Employer Identification Number (EIN) for your business. This number is necessary for tax return purposes. Visit the IRS website to apply online. It’s a straightforward process.
Paying a reasonable wage is crucial. The pay should match the work’s level and adhere to the Fair Labor Standards Act. Make sure to check state and federal minimum wage laws for guidance.
You need to document your child’s work. Keep records of hours worked and tasks completed. This information might be needed for tax and legal purposes.
Prepare and file a W-2 form under your child’s name. This ensures that their wages are recorded for income tax withholding.
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Consider whether your child is an employee or an independent contractor. This affects the type of taxes you need to pay, like FICA taxes and FUTA taxes.
Some businesses may qualify for a FUTA exemption, depending on the child’s age. Check tax laws or consult a tax advisor to learn more about these exemptions.
For small business owners, hiring your children can reduce payroll taxes. Some taxes, such as Social Security and Medicare, may not apply if your child is under a certain age.
For any confusion regarding IRS rules or tax laws, seeking legal advice is wise. A tax advisor can offer insights into how best to hire your kids while staying compliant with relevant regulations.
Understanding The Tax Advantages
When you hire your kids to work in your business, you can gain several tax advantages. One of the most significant benefits is the potential to lower your federal income tax bill. By deducting your child’s wages as a business expense, you may reduce your taxable income.
Tax savings can be substantial. As your child’s earnings may be tax-free up to the standard deduction amount, their income is typically not subject to federal income taxes. This can lead to impressive tax breaks, especially if your business is in a high tax bracket.
Consider the business tax deduction. If your child works in your business, their salary can increase legitimate business deductions. This advantage helps to reduce both the state and federal income tax bills.
Your child’s tax liability might be lower, meaning they can keep more of what they earn. This income is not considered unearned income, so it’s not subject to the kiddie tax rules that often apply to children’s investments.
Remember that these tax advantages require following IRS rules closely. It’s crucial to ensure that your child’s work is necessary and that their pay is appropriate for the job. By carefully managing these details, you can maximize your benefits when you decide to hire your kids.
How To Contribute To A Roth IRA With Your Child’s Earnings
When you hire your kids to work in your business or do household tasks, it’s important to start saving with their earnings.
Kids with earned income can open a Roth IRA. This account lets your child’s savings grow tax-free over the years. You, as the custodian, control the account until they reach adulthood, but the contributions are based on their earnings.
To contribute, your child needs to have earned income. This can come from a summer job or part-time work. The amount they can contribute each year is the lesser of their total earned income or $7,5000 for 2024. In later years, after they turn 50 they are entitled to contribute an additional $1,000 per year.
A custodial account setup allows you to manage the Roth IRA for minors. This gives you the ability to help them save while ensuring that funds align with IRS rules. Roadblocks like income limits for high earners don’t usually affect kids starting out.
Our kids Roth IRA retirement accounts were opened through Fidelity Investments
Besides retirement savings, consider other options like a Traditional IRA or college savings accounts. While these might offer tax benefits, a Roth IRA often stands out for long-term growth due to its tax advantages.
Encourage your child to set savings goals. Whether it’s saving for a big purchase or future education, contributing earned income towards a Roth IRA fosters good financial habits that last a lifetime.
Teaching Work Ethic And Valuable Skills
Teaching kids work ethic and valuable skills sets them up for future success. When you hire your kids to handle chores or small tasks, you’re giving them a chance to learn responsibility and dedication.
Create a simple “job description” for tasks around the house. This can include chores like making the bed or helping with the dishes. Such tasks encourage discipline and can be rewarding when completed.
Reward their efforts with positive feedback or small incentives like extra playtime. This shows them that hard work pays off. Encouraging children to set their own goals can also improve their problem-solving skills.
Education isn’t just about schoolwork. It’s the life lessons in between that often count the most. By helping with family responsibilities, kids learn cooperation, respect, and time management.
When kids see their efforts contribute to the family, it boosts their self-esteem and understanding of teamwork. This experience prepares them for future job roles and builds a stronger work ethic.
Tips For Success
When you hire your kids, make sure they are doing real work. This means tasks that are necessary for your business.
Documentation is key. Fill out all the required forms, like the Form W-4 and Form I-9. This shows that your child is a legitimate employee.
Consider setting up a direct deposit for their paychecks. It makes managing their earnings easier and teaches them about banking.
Seeking professional advice can help you navigate the legal and financial aspects of employing your children. This ensures you’re doing everything correctly.
Hiring your kids is a tax-smart idea. By paying them a reasonable wage, you may reduce your taxable income while teaching them financial responsibility.
Work should be age-appropriate. For example, babies can be compensated for using their image in your marketing and public communications.
Plan for the end of the year. Review earnings and make necessary adjustments to stay compliant with tax regulations.
It’s a great way to keep wealth within the family while building valuable skills. By involving family members in your business, you prepare them for future success.
Let your kids be involved in deciding which investments their Roth IRA is invested in. I generally invest about 75% of their balance in index funds. But, the remaining funds are used to buy individual stocks as determined by them. For example, they have chosen companies like Starbucks, Disney, Roblox, and Rover.
Why Hiring Your Kids Is A Great Tax Strategy
Hiring your kids can be a smart tax strategy. When you hire your children to work in your business, you may be able to lower your taxable income. This happens because you can deduct their salaries as a business expense.
If your business is a sole proprietorship, you can pay your child without withholding Social Security and Medicare taxes if they are under 18. This can lead to additional tax savings.
Paying your kids can also help shift income from a higher tax bracket to their tax-free income. By doing this, your overall family tax burden may decrease. Be sure to pay your children fair wages for actual work to comply with IRS rules.
Consider setting up a separate savings account for your children’s earnings. This can be a great way to teach them about managing money and planning for the future. Make sure to follow all tax rules to fully benefit from this strategy.
Mom Owned Business Sets Children Up for Financial Independence
Generations of the past seemed to revel in children going through struggle as a point of pride. These days a child’s parents strive to give them more opportunities than they had.
Even a single member LLC network marketing business can turn income into generational wealth. Business revenue can be used by a child’s parents as an employee wage expense which are legal business deductions.
Every small business can be the change that ends poverty for future generations. It really is as simple as allowing time to grow the money. Start small if you need to, but start now.
Not every business can start paying the full $583 per month to each child. But, start with whatever you can and do it consistently.
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