Paying your children to shift income from your business

[THU NGUYEN]

Hi,

Any tax guru can help me out on this question:

I want to pay my kids for working for me...but don't really know the pros/cons between W2 - payroll vs Issue 1099?

Thanks in advance for your help.  

[Ashish Acharya]

Originally posted by @THU NGUYEN:

Hi,

Any tax guru can help me out on this question:

I want to pay my kids for working for me...but don't really know the pros/cons between W2 - payroll vs Issue 1099?

Thanks in advance for your help.  

Good info above. 

Remember that you need to be either sole proprietor or SMLLC to hire kids and avoid the FICA taxes.If you have a partnership, parents needs to be partners to avoid FICA. 

Employing the Your child in the  business can be an effective tool to decrease your tax. 

A child can earn up to $17,500 in 2018 without paying any income taxes ($12,000 standard deduction plus $5,500 deductible IRA contribution).

On top of this, if your kids have unearned Income, they can avoid kiddie taxes if they provide more than half of the support with the money they earned. 

Basically paying your kids will also shelter your portfolio income to lower taxes of kids.