Tax Reduction Podcast

Episode 5. Hire Your Children for Profitable Tax Savings Strategy

• Boris Musheyev

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Imagine being able to legally employ your own kids in your business, and in the process, shift burdensome high tax brackets to a zero or low one. I promise, by the end of this episode, you'll understand every step of how this tax strategy works and how you can start implementing it in your business in less than 30 days. We'll break it down for you, whether you're a sole proprietor, part of an LLC, or an S corporation. And the best part? As long as your child earns up to $13,850, they won't owe a penny in income tax, while you, the business owner, gain a handsome tax deduction. Plus, did we mention that there are no payroll taxes for you, the parent-employer? It's a double win!

But wait, we're not stopping there. Let's take a step further and explore how you can partner with a tax advisor to further reduce your tax bill. Why work harder when you can work smarter, right? Unleash the power of proactive tax strategies with the help of an expert. We even have free resources to help you get started on your tax savings journey. Just subscribe to our podcast so you don't miss out on any upcoming tax strategies that could save you a fortune. Here's to keeping more of what you earn! So, get ready to take notes and let's dive into the world of tax savings!

I've put together this FREE resource for you:

7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/

Ready to start saving money on your taxes?
☎️ Schedule your FREE Tax Advisory Session: https://taxplanningcall.com/

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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, ...

Boris:

If you are a business owner, you gotta start using a tax strategy of hiring your kids to work in your business. This is one of the best, easiest and lucrative tax strategies. Basically, you shift the income from your high tax bracket to your children's zero or very low tax bracket. We're gonna talk about hiring your child from different entities that you might have, whether it's a sole proprietorship or an S corporation, which has some different rules and regulations about how to do this, but still to be able to maximize your deduction as a tax strategy. We will also talk about what to do next. You will be equipped with information how to start implementing this tax strategy right away, ready.

Intro:

Welcome to the Tax Reduction Podcast for Money-Making Entrepreneurs with Boris Musheyev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies. This podcast is all about saving you money on taxes. Boris will share with you in depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

Boris:

Let's get started with this tax strategy, Because always I've broken it out to you in three simple steps. We're going to talk about why the strategy and really what to do next. So definitely make sure you stay till the end to know what you need to do next properly to execute this tax strategy. Before we talk about why, I want to talk about this tax strategy in terms of how it really works. Now here's the thing Anybody in America I don't care who you are, anybody in America, a child or an adult the federal IRS code, the tax code, says that if you make up to $13,850 and these numbers are for 2023, if you make up to $13,850, you pay no income tax.

Boris:

First of all, you need to understand this, because this is how this tax strategy comes into play. That means your children, who probably don't have other jobs because they're in school or whatever that may be. They don't have any other income. So any income that you pay them from your business up to $13,850, that child or if you have more than one, those children will not pay any income tax on this amount and you, as a business owner, will receive a tax deduction. So this is really an income shifting tax strategy. You're shifting income from yourself to your children, but not only are they not paying any income tax, ladies and gentlemen, what really becomes very interesting is that IRS says hold on a second, it's the parent employing a child. In that case there's no payroll taxes. Wow, right, Think about that.

Boris:

Usually anybody that's in America works and makes $13,850 or up to $13,850, they don't pay any income tax, but they do pay the second tax, which is the payroll tax, the FICA taxes, which we all know, which is the social security Medicare. But the IRS code says if it's your child, forget it. You don't have to pay that FICA tax, nor does your child. Boom, mind blowing, right, it's a great tax strategy. So, basically, it's $13,850 right off from your business, your child doesn't pay any income taxes and, most importantly, this $13,850 reduces your taxable income. If you got two children two children, that is $27,700 deduction which, if you are business successful business owner, I'm guessing right You're probably in a 30% bracket you're going to save $8,310 right off the bat without really giving your money away to somebody else. It's to your children, right? Same family, but guess how much money you're saving on taxes. That is really why you should be using this tax strategy.

Boris:

Now it does get a little bit detailed and I'm going to break it down for you in a simple to understand language, I promise. Now what happens is that there's different treatments of when you are a sole proprietor or an LLC, single member, LLC or a parent partnership. I should really write here parent okay, If it's a partnership with another person, it's different treatment, but we're assuming a parent partnership, Then different. It's treated differently if you are Nes corporation or a C corporation, and we're gonna dive deep into this so you can understand this right after this break.

Intro:

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner Seven tax write-offs every S corporation business owner must know. In this PDF you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

Boris:

Cool, welcome back. Now let's talk about different treatments of using this tax strategy of hiring your children. If you have a sole proprietor and you have an S corporation, now what is really a sole proprietor? I'm not gonna spend too much time on this, but it's basically when you have your own business and you're operating under your own name or a DBA, you don't have an LLC per se or you don't have a corporation. Now if you do have an LLC and you are a single member LLC, single owner, llc for tax purposes you are considered as a sole proprietor. Now here's the rule.

Boris:

Irs says that when you pay your children, your child does not have to pay taxes up to $13,850. We have covered that. There's also no payroll taxes, but IRS makes a stipulation. The only reason you don't pay the payroll taxes of 15.3% right, the reason is because you are a parent. So when you run a sole proprietorship business, you are a parent running this business. Irs says you know what no payroll taxes, don't worry about it, you're good to go when you become an entity, such an LLC, because for tax purposes, irs treats LLC as a sole proprietorship. Irs says you know what? I'll close my ears, I'll close my eyes, I'll shut my mouth and I'll still let you take this deduction and not pay any payroll taxes. And then you choose to be partner with your other spouse and IRS says I shut my ears, I close my eyes and I shut my mouth. No payroll taxes. You are considered as a parent, whether you are a single member, llc or a partnership, which is a parent partnership. Easy peasy, super, super awesome strategy. Now, majority of business owners are S corporations okay, not even C, but for this purposes, s and a C are the same. Irs says hold on a second. Now you're playing a whole different game. You are a corporation, you are no longer considered a parent and because you are no longer considered a parent, you have to pay payroll taxes. Don't get me wrong. When you pay your child $13,850, you're gonna get a deduction, your child not gonna pay an income tax on it, but your child will pay a payroll tax. Now, as you know, when you issue somebody a paycheck in your business, as you know, you pay payroll taxes, which is the Medicare and the Social Security tax of 7.65%. That person pays 7.65%. Same rule would apply to your children.

Boris:

So now you might say well, boris, and this strategy is not as lucrative for me, then Almost. You're not completely correct when you say that. Why? Let's say you are in a 30% bracket profitable business money coming in, you gotta pay taxes, but you gotta use tax strategies with your tax advisor, right? So what are you gonna end up doing? Is that, even though you pay your children from an S corporation and you still end up paying the payroll taxes? Well, guess what, 30% minus 15% over here, you're still saving 15% on taxes. So, in our example, instead of saving $8,310, if you employ your children from an S corporation and pay payroll taxes, you'll end up saving about $8,310,000. $4,000 still savings. Now, is there a workaround, boris? Is there a workaround? This is IRS tax code we're talking about. Can I still have an S corporation and not pay any payroll taxes? The answer is yes.

Boris:

Not going to get into too much detail because a lot of people tend to misuse this information, abuse it and get into trouble with IRS. But there is a workaround. The workaround is creating a family management company. A family management company, basically, is created by one of the parents, which then becomes a sole proprietor. The IRS says now oh wow, you are now a family management company, You're a sole proprietor, you're back to being a parent and the family management company provides services to your main business. The main business pays the family management company and the family management company pays your children.

Boris:

Is this strategy so simple to set up? Not as simple, and should be done within advice of your tax advisor. Rules and regulations have to be followed and you have to be in compliance. I'm not saying that it cannot be done, don't get me wrong. It can be. But a lot of people watch reels and watch shorts and watch some YouTube videos and they start spitting out all this information. But no, no, no, no. You got to work with your tax advisor to get this done. Now we say if you have a profitable business, I can guarantee you are overpaying in taxes and Stop working with your tax preparer. If your profitable business, you need somebody who can help you save on taxes now. What to do next how to really implement this tax strategy. Start to start saving money on taxes Will be right after the break and we'll talk about it.

Intro:

If all your accountant does is taxes, you may be overpaying in taxes by thousands of dollars every year. Every week, boris releases a tax strategy on his podcast so that you, the business owner, can pay less in taxes every single year. Be sure to subscribe to our podcast to be notified when a new tax strategy is released. If you're ready to work with a tax advisor on your tax strategy and planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. Again, that's wwwtaxplanningcallcom.

Boris:

All right, awesome. Let's talk about what to do next, how to start using this tax strategy today Properly, okay, properly. But hey, hey, you got to work with the tax advisor to do this. But if you want to take your chances, let's give it a shot. All right, number one before paying your children, you've got to pay your children a reasonable compensation. You can hire a child to help you do paper shredding for $50 an hour in your office. Just now, how it works.

Boris:

Irs does not like when people abuse a tax strategy, so what we want to do is pay your child a reasonable compensation. By the way, I've put together a list of things that your child can do completely free. Pdf download in the description below. You pay your child for whatever it is. So now you might say well, boris, my child comes in and does this for me. Well, look up online how much somebody like that would get paid and pay your children based on that.

Boris:

Keep time sheets. Documentation is super important. Irs wants to know is this legitimate? Now you can say of course it's legitimate, but you have nothing to back it up. That may be a problem. So, time sheets in my office, my children, they sign in and they sign their time sheets. Okay, they sign their time sheets. I paid them a reasonable compensation.

Boris:

Now you might say, well, boris, what can be a reasonable compensation? I'm not really sure. Well, you can at least pay them the minimum wage in your state. Okay, keep time sheets.

Boris:

Now, remember your business. The way it would work is that your business would pay your child directly. Okay, now, your child does Need a bank account. It cannot be going to parents bank account. Okay, your child does need a bank account. In a case where you have a management company set up, your business would pay the management company and then the management company will pay your child's account. But again, you've got to work with a tax advisor if you want to start getting the family management company involved, which is, again, a great strategy. But you should not be doing it on your own. Now the business pays. The child must have a bank account.

Boris:

Okay, do not do lump some payments. What I've seen happen is that people watch a video on YouTube about hiring children, and that's really the main reason I'm doing it is that when they watch it, they watch the video and at the end of the year, to just write out a check $12,000 or $13,000, 800, 5000 transfer to the child, take a deduction? No, cannot be done, should not be done, because it probably doesn't have any documentation. You can't substantiated the reasonable compensation, the time sheets, the documentation, it the whole thing just looks wrong and it will be an ad back and it will be challenged by the IRS, especially when you got two or three children, writing them $40,000 check. Lump some. Don't do it.

Boris:

Instead, what you need to do is pay them, is Pay them on a frequency of your payroll. So if you, especially if you have other employees working for you, so what do you need to do? If you pay your employees on a by view, by weekly basis, excuse me, you pay your children on a by weekly basis. Okay, super, super important. Look, like I said, this tax strategy can really save you a lot of money on taxes. You just need to do it and you just need to implement it. Work with a tax advisor to make sure your strategies are implemented. I personally do not believe, personally do not believe that a business owner should be implementing all of the strategies on their own. You've got to run your business. You've got to work with a tax advisor to help you implement these tax strategies. Thank you so much, and until the next time.

Intro:

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to wwwtaxplanningcallcom. That's wwwtaxplanningcallcom. And be sure to subscribe to our podcast to be notified when the next strategy is released.