Putting Your Kids On Payroll – Tax Strategy | Mark J Kohler | CPA | Attorney

Putting Your Kids On Payroll – Tax Strategy | Mark J Kohler | CPA | Attorney


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 Thanks so much for watching that video and I want to be your source for tax and legal strategies It’s hard enough to live the American dream without being out on the web on Google trying to find answers to complex Questions and just clicking a mouse hoping you got it, right My team and I want to be a huge resource treatment the law firm accounting firm by Education resources on my site. Please continue to follow these strategies I know the safety thousands now click here if you want to be a part of my newsletter It’s awesome weekly updates and deadlines and strategies and tips also subscribe to my youtube channel You’ll love it and make sure to click the bell icon So you get a little ping whenever there’s a new video and finally check out my site Marjory Kohler comm with all sorts of videos Probably 70 plus videos 30 plus hours of content that has saved you thousands

25 thoughts on “Putting Your Kids On Payroll – Tax Strategy | Mark J Kohler | CPA | Attorney

  1. Dude as always you're awesome with your videos, full of value!!!

    Thank you!

  2. Thanks for the update.

  3. If my kids help me in my small business, does my business have to make a certain amount per year in order for me to pay my kids? I’m just starting out so I’m not making much

  4. Amazing how the US and UK tax are becoming even more similar.

  5. Excellent video Mark – always a good job explaining boring tax issues in a very friendly and easy to understand way!

  6. Wow !! Amazing info !

  7. Do you have to file 941 quarterly? if you haven't hold any taxes from your kids

  8. Hey Mark- Do you have a source for no w2 being needed? It directly contradicts the instructions on form w-2. Thanks!

    "Complete and file form w-2 for each employee whom any of the following applies (even if the employee is related to you). You withheld any income, social security, or Medicare tax from wages regardless of the amount of wages; or You would have had to withhold income tax if the employee had claimed no more than one withholding allowance or had not claimed exemption from withholding on Form W-4; or You paid $600 or more in wages even if you did not withhold any income, social security, or Medicare tax. Only in very limited situations will you not have to file Form W-2. This may occur if you were not required to withhold any income tax, social security tax, or Medicare tax and you paid the employee less than $600, such as for certain election workers and certain foreign agricultural workers. See Election workers and Foreign agricultural workers, later. "

  9. The penalty for not filing a W2 is a set dollar amount, not a %. You're confusing it with the 941 penalties, those are a percentage of the tax owed.

  10. Mark, I never thought I could get excited learning this stuff. You make interesting and I appreciate all your help. I just started a small cleaning business and like so many, setup a sole proprietorship. I don't anticipate grossing more than $1500/mth to start with. Should I stay with this setup or convert to LLC now. I'm one month in.

  11. Does it have to be your child, can it be a niece or nephew?

  12. Phenomenal content.

  13. Great Job! Thank you so much for taking the time!

  14. Excellent video! Complex topic explained in simple terms. That is the mark of someone who really knows their stuff.

  15. can this rules be aplied also to the sole proprietor business? how about if my kid is not living with me all year around ..? thanks for your answer

  16. This is good information! Thank you.

  17. Hey! I have an Amazon business that I just started last year. I spent almost 10k and my return was only on hundreds. My question is will I get any money back from my tax return so I can reinvest?

  18. Any update video planned for 2019?

  19. 😍😍

  20. QUESTION : 1) So what would the CATEGORY / EXPENSE for the S.CORP : SPOT LABOR? ..2) What is MANGEMENT FEE? what are we talking about? How much? Thanks for your help!

  21. Good video and thanks for mentioning not having to deal with a W2.

  22. To clarify, if they don’t make $12k yr they don’t have to pay any taxes.
    My question, are they still a dependent on my taxes as well?
    If they do file, would it hypothetically increase their Social Security if it’s still around? If not, is it because it not withheld from their payments?

  23. At what age can you start this? I have a 5 yr old I could put to work!

  24. Great video – I recommend this strategy too for my SMB clients. Great way to get money out tax free.

  25. What is the minimum age to hire your children?

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