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  • Hiring your children?

    WCI has written about the benefits of hiring your children in a couple of recent articles and there seems to be quite a bit of interest in that topic. If you are thinking about doing this, you'll find this case of the attorney who hired her children to be of interest. Not only did she not keep appropriate records (the "earnings" was contributed to the children's 529 accounts and used to buy things they wanted) but she put a new spin on business travel - writing off expensive trips because daycare cost too much. Pigs get fat...
    Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

  • #2
    Thanks for yet another great resource!

    On this subject, if you ask your child to wash your car or mow your lawn, etc- and pay them "average and reasonable" wages  for these chores, does that count as earned income for them and can the proceeds be invested in a Roth account to their names? Thanks

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    • #3


      u ask your child to wash your car or mow your lawn, etc- and pay them “average and reasonable” wages  for these chores, does that count as earned income for them and can the proceeds be invested in a Roth account to their names
      Click to expand...


      Yes.

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      • #4
        That sounds great, Joseph- but I just found this article and here is an excerpt:

        "Do not hire your children simply to do "family chores." The chores will not qualify as a valid deduction, and you could set yourself up for an audit. Pay your children for services they perform for your business, and you'll actually generate an expense for your income taxes by pushing income to your children."

        So, sounds like they have to be fired by a business.

        What am I missing?

         

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        • #5


          What am I missing?
          Click to expand...


          The kids are their own business if they are mowing lawns etc.

           

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          • #6


            On this subject, if you ask your child to wash your car or mow your lawn, etc- and pay them “average and reasonable” wages  for these chores, does that count as earned income for them and can the proceeds be invested in a Roth account to their names? Thanks
            Click to expand...


            I skimmed the article. Joseph is correct that if your child has a mowing business, you can pay him/her reasonable wages and it can count as earned income. If mowing is just a chore they have to do and they get an allowance, that is not earned income. Rather subjective but the key is documentation and being reasonable. Let your kids use the family mower to mow the neighbor's yard, too. He/she can print up invoices and bill you and whoever else pays for lawnmowing. Don't pay a 12-year old $500 to mow the yard. Etc.

            I bet that the IRS would be delighted to find such good documentation. That is IF you were ever audited, which is unlikely. Not sure how it would even come up in an audit - this would not be an expense you deduct on your return, your kid would owe some SE taxes (although I wrote a letter to the IRS when I paid my children for same and they d/n/h to pay SE taxes), and you are not reporting a deduction for contribution to an IRA.
            Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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