Question:
I own a business, a sole proprietor, so I file my income tax return with a Schedule C. My children, ages 15 and 17, help me around the office to do chores I assign to them. Should I pay them?
Answer:
Yes. There are some very important income tax benefits to do so-it is better to put them on the payroll and pay wages to them rather than an allowance. Your net profit from this business is taxed at the highest tax rate of any income; thus, any deductions like wage payments to children will save substantial income taxes. And, you can even set up an IRA or SIMPLE IRA account to benefit them later. Note that the IRS requires the children to perform meaningful work and that you pay them the going rate for such work.
Feel free to contact me if you or someone you know has this type of situation. Tax and Financial Planning advice presented here is general in nature, and individual circumstances make applying these general rules tricky; thus, the above answer cannot be applied to all circumstances because the slightest variation could cause a different outcome.
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