Own a Small Business? Hire Your Teenager this Summer!
Like it or not, school is nearly out for summer! If you’re wondering what to do with your teenager all summer, you’re in luck! If you own a small business, or someone else in your immediate family does, you can save money on your business taxes if you consider the move to hire your teenager this summer.
If your small business has legitimate work that could be performed by one or more of your teenage children (or grandchildren), it’s a no-brainer to hire your teenager this summer. Not only are there fundamental, intrinsic values to this arrangement, but there are also several financial benefits for both you and the child.
While teenagers may require more initial training, especially if this is their first job, they tend to be more adaptable, and you might be surprised to find just how attentive they are, and eager to learn more about your company. You will have the opportunity to expand their occupational skills, instruct them on your procedures, and model a work ethic that they can aspire toward. In addition, your child will have the opportunity to gain work experience while strengthening his/her communication, cooperation, and critical-thinking skills. This resume-building work will considerably aid your teenager as they get older, contributing to a more prepared workforce overall. Many colleges and technical schools are beginning to look at a broader entrance package that now includes job experience and more extracurricular activities; by providing this work experience, you will help make your kids or grandkids more well rounded for the future.
Financially, there are several benefits to hiring your teenager this summer to work for your small business.
Perhaps the most obvious one is this: part-time minors don’t require or expect the same compensation as full-time, experienced adult employees. Minimum wage is acceptable, and if they are between the ages of 14 and 15, you can even reduce those wages, as long as the wages are reasonable for the work they are required to do. This obviously saves money for you and your business, while still accomplishing some of those important tasks that may have been on the back burner for some time, such as filing, cleaning, organizing, and so on.
In addition, hiring your child as a legitimate employee of your business can be a great tax-saving strategy. If you operate your business as a sole proprietorship, as a single-member LLC that is treated as a sole proprietorship for tax purposes, as a husband-wife partnership, or as an LLC that is treated as a husband-wife partnership, hiring your kids gives you a tax deduction that is not available if you hire other employees.
When you hire your teenager this summer, you will get a business tax deduction (for employee wage expense) for money you might have given to your teenager anyway, and you won’t have to withhold or pay any FICA (Social Security or Medicare) or FUTA (federal unemployment) tax on the minor’s salary. In fact, FUTA will not need to be paid until your child reaches the age of 21. These tax laws allow you to shift part of your business income from your personal tax bracket to your child’s bracket, resulting in substantial tax savings.
Furthermore, your hired child can use his or her standard deduction to shelter wages up to $12,000, thanks to the Tax Cuts and Jobs Act (TCJA), which doubled the standard deduction from 2017 to 2018. This will not only help your business save on wages and tax liabilities, but it will also give your child a chance to earn money and perhaps save it for college or to help fund their sports, club fees, or other activity-related expenses.
The IRS is well aware of the tax benefits of hiring a minor, so be sure to maintain records that prove legitimate hours were worked by your child and duties they performed. You’ll need to file a W-2 for your child to verify their pay, like you would for any other bona fide employee. Likewise, it would behoove you to familiarize yourself with the Fair Labor Standards Act (FLSA) and Colorado Youth Law, as certain duties and work environments may be deemed too hazardous, depending on their age and experience level.
Take advantage of the life-changing and tax-saving opportunities when you hire your teenager this summer. For more information on how to take advantage of these benefits, and to get the most out of hiring your teenager this summer, contact the accounting experts at Tally Services. We would love to help answer any questions you might have and walk you through this process so that you can save money as a small-business owner.