The very thought is fraught with perils, pitfalls… and exciting possibilities. The idea of hiring their children for the summer brings a dreamy look to the eyes of many small business owners…as they envision a dynasty bearing the family name being handed down from generation to generation. Then they break into a cold sweat as they wonder what damage, discord and dishonor “Junior” might bring to the company.
The good news/bad news about hiring your children for the summer: On one hand, it gives the kids a taste of what it’s like to be in business. Perhaps they’ll go back to school with a better understanding of the frustration and excitement that drives you every day. And just maybe they’ll want to follow in your footsteps. Even if they decide that the business isn’t for them, a summer on the payroll could strengthen the relationship between you. On the other hand, it could lead to family strife and disrupt the smooth workings of your company.
So, consider the following before adding your son or daughter to the payroll this summer:
· Make sure you both want to do this. Many children would rather flip burgers for minimum wage down the block than receive $15 an hour plus their own office in your business … and be known as “the boss’s kid.”
· On the other hand, if this is something that’s important to you, try diplomacy and tact. But also keep in mind that some things just aren’t meant to be. If you have reservations about your child’s maturity or your own ability to cope, encourage him or her to seek summer work elsewhere. You’ll both be happier … and the business will be better off.
· Make sure it’s a real job … with real responsibilities and pay. Bringing Junior in to do a make-work job for an inflated paycheck and come-and-go-as-you-please hours will undermine the morale of your other employees … and be a disservice to your child. Of course, there are situations when you may want to pay your child an above-average wage for tax and/or college tuition reasons. If this is the case, keep these arrangements between you, your child and the bookkeeper.
· Make sure you know who will supervise your child. Parents tend to be either too lax or too strict. If you’re the kind of parent who can’t coach your child’s sports team without blowing up, don’t try to manage your child in the business. Get somebody else to do it. But be aware that supervising the boss’s kid is no honor in the eyes of most employees. Make sure this person can be fair, and has your total support … especially when Junior starts talking shop around the dinner table.
Tax considerations: If you decide to hire your children for the summer, you should also be aware of the ins and outs of your tax situation. Hiring family members can create a unique set of opportunities and problems.
· Your child’s salary is deductible as a business expense. This can reduce your taxable income. If the money is to be used for college expenses, you are effectively paying tuition with pre-tax dollars.
· If your business is a sole proprietorship and your child is under 18 years of age, you pay no unemployment or Social Security taxes on wages earned.
· If the business is a corporation, you must pay Social Security taxes on wages, regardless of age.
· Your child can deduct up to the standard deduction without owing any income tax.
The bottom line: If properly arranged and carefully planned, hiring your kids for the summer can create a win-win situation — both financially and personally — for you and your children, while also generating some highly attractive tax benefits. Check with your tax advisor for details.
Work hard. Make money. Have fun. – JRIngrisano
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