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Hiring 9 y.o. daughter for the S corp

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  • Hiring 9 y.o. daughter for the S corp

    I'm thinking of hiring my 9 y.o. daughter for my S corp with the goal of saving on taxes and so she can open a Roth IRA perhaps. Do I have to make her an employee or can I just pay her as an independent contractor? I'm thinking of paying her around $6K/year for cleaning the office and some other minor duties I could think of. And would she have to file a tax return whether she gets a W2 or 1099-NEC? Looks like I can put the whole $6K in a Roth IRA if I do this. I understand we'll be paying either some FICA or self employment taxes on this, but as I understand it, the amount will be spared from income tax so we still come out ahead (our tax bracket currently is at 35%) plus the benefits of a Roth IRA.

    Thanks in advance for your time.

  • #2
    You can do either, depending on her supposed duties. In fact, I've done both.
    I've done photoshoots with them and used their images on my marketing materials, for which they were paid as ICs.
    And they've done filing and cleaning work in the office, for which they were paid as employees.
    So in some years, they've gotten both a 1099 and a W2 - adding up to exactly $6K as that was the limit for Roth IRA and the income tax.

    I am not an accountant, but the advice was always to make sure the compensation is commensurate with age and time. $6K for a 9 year old kind of makes sense, 8hrs/wk @$15/hr, so I think you're OK there.
    At $6K, she would not have to file a return.

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    • #3
      Originally posted by molar roller View Post
      I am not an accountant, but the advice was always to make sure the compensation is commensurate with age and time. $6K for a 9 year old kind of makes sense, 8hrs/wk @$15/hr, so I think you're OK there.
      At $6K, she would not have to file a return.
      i don't think this is right.

      $15 is rather famously double the minimum wage. absolutely no way to argue that $15/wk is a fair market wage for a 9 year old and very difficult to argue that 8 hours/week is a "normal" workweek.

      i would stay away from this. i know WCI pays his kids as models and he's smarter about this than me but personally i would stay away from that as well.

      there is nothing a 9 year old can do for which they have a fair market value for time except modeling or acting or the like. i say that b/c there is no market for 9 year old office assistants.

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      • #4
        It is rarely proper to hire your minor child (especially a nine year old) as an independent contractor (IC). There are very few cases where a minor child meets the IRS's Behavioral Control, Financial Control and Relationship of the Parties to be classified as an IC.

        How convenient their total compensation added up to exactly the IRA contribution limit.

        I have been generally supportive of hiring a spouse/child for legitimate business necessary work tasks paying far market value (FMV) wages. However, I am increasingly concerned that these are increasingly becoming a means to an end.

        Is $15/hr really a FMV wage for a nine year old unless that is the minimum wage in their state? Is it really such a horrible thing if they make and can contribute less than the IRA contribution limit?

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        • #5
          I remember my first job at 6 months old working down in the coal mines.

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          • #6
            it what world would you hire a 9 yr old to clean your office if it wasnt your child? And pay them more than minimum wage?

            I get the child model part, because there are child models, actors, etc- legitimate jobs. I have yet to run into an office cleaning service advertising that children will be cleaning your home/office.

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            • #7
              "To be deductible, a business expense must be both ordinary and necessary. An ordinary expense is one that is common and accepted in your trade or business. A necessary expense is one that is helpful and appropriate for your trade or business."

              I always find it amazing how "ordinary and necessary" seems to cease exactly at $6,000. Would you be comfortable explaining why the business activity was no longer needed? Absolutely no problem paying kids for work performed. Just ordinary and necessary.

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              • #8
                Originally posted by MPMD View Post

                i don't think this is right.

                $15 is rather famously double the minimum wage. absolutely no way to argue that $15/wk is a fair market wage for a 9 year old and very difficult to argue that 8 hours/week is a "normal" workweek.

                i would stay away from this. i know WCI pays his kids as models and he's smarter about this than me but personally i would stay away from that as well.

                there is nothing a 9 year old can do for which they have a fair market value for time except modeling or acting or the like. i say that b/c there is no market for 9 year old office assistants.
                I agree, it's a little high. I originally wrote "kind of high" but changed it to "kind of makes sense" - maybe I shouldn't have.
                FWIW, my kids were a little older (11/13 to present 18/21), and most of their pay was for modeling. I had multiple photoshoots with professional photographers and videographers, and used their images and videos in all my marketing. My CPA felt $1500-2000 per year was reasonable, plus ongoing royalties.

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                • #9
                  Originally posted by spiritrider View Post
                  It is rarely proper to hire your minor child (especially a nine year old) as an independent contractor (IC). There are very few cases where a minor child meets the IRS's Behavioral Control, Financial Control and Relationship of the Parties to be classified as an IC.

                  How convenient their total compensation added up to exactly the IRA contribution limit.

                  I have been generally supportive of hiring a spouse/child for legitimate business necessary work tasks paying far market value (FMV) wages. However, I am increasingly concerned that these are increasingly becoming a means to an end.

                  Is $15/hr really a FMV wage for a nine year old unless that is the minimum wage in their state? Is it really such a horrible thing if they make and can contribute less than the IRA contribution limit?
                  Would modeling fees not fall under IC classification?

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                  • #10
                    I personally would not want to be a patient in a medical office that had been cleaned by a 9 year old.

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                    • #11
                      Please don’t do this. It’s not honest. It’s not genuine. And it’s wrong in so many ways.
                      when your kid is 16, he/she can get a real job and you can teach them how to save. Or if he/she wants to start early, they can get a work permit at age 14 and work at a fast food restaurant. I got a work permit at 14 and worked at Taco Bell.

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                      • #12
                        If I were working for the IRS, I would audit all of these schemes. There is probably other tax dodging to discover.

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                        • #13
                          The question (from a society standpoint) is the appropriate penalty for tax evasion. Tax on $6k roth is one thing, $6m offshore is another. No one wants to go to prison for a kids $6k roth earnings. Is the penalty on the amount of tax or for the act itself. Intentional evading taxes is causing some of the "loopholes" only available to the rich and "fair share" sentiment. Not directed at OP.
                          VagabondMD would be a tough prosecutor.

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                          • #14
                            Oh no, not yet another thread of yet another doc wanting to hire his child to do work that is highly overpaid just to put the money in a Roth IRA.

                            First there was $100/hr + as model for their website.
                            Then there was another thread about hiring them to teach their younger sibling for $10/hour.
                            And now this. A nine year old kid cleaning office for $15/hour.

                            What will the next thread be to get a 3 year old to get $6K for a Roth IRA. People here are obsessed with Roth IRA and backdoor Roth IRA and like to fund it with dubious, and sometimes borderline legal ways, of giving them the money.
                            Last edited by Kamban; 02-27-2021, 04:16 PM.

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                            • #15
                              Originally posted by CordMcNally View Post
                              I remember my first job at 6 months old working down in the coal mines.
                              You waited for 6 whole months to work in the coal mines, carrying a canary down the mine each morning? How has the Roth from those earnings done so far?

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