Looking to cut your income taxes?
Tax planning doesn't have to be hard and complicated. In fact many times it can be simple as can be and save you a ton of taxes as well.
Take for instance paying your kids. This one is an absolute gold mine.
Pay your kids for work they provide your business.
Under the tax code your business gets to deduct wages to employees. Thus if your kids provide valid services to your company the company can get deductions, and yet in most cases the kids won't have to pay a dime in taxes! It gets even better if your business isn't a corporation and is owned 100% by you or you and your spouse. If that is the case and your child is under age 18, no employment taxes are due as well.
Let me give you an example of how powerful this is:
You are a consultant and make about 150K a year. You have 3 kids, all under 18, and each helps out around the office, filing, doing web design, creating videos, creating spreadsheets, powerpoints, facebook marketing. . . you get the idea. All the new computer stuff that you are too old to learn. If you hired someone else they would cost easily over $25/hour and so your kid's wages of $15/hour are a steal.
Each kid works about 10 hours a week, 20 weeks out of the year. That means you pay each $3,000 or a total of $9,000. You just created $9,000 in tax deductions for your business. If you are in a combined state and federal tax bracket of about 25% you just sliced over $2,000 off your taxes. By the way, this is a great way to teach the kids the value of a dollar and how much those video games and cell phones actually cost.
Not only that, but you are teaching your kids about business and what it takes to get ahead in the world.
The kids are going to have to pay taxes too, but since each gets to to use their personal exemption, they'll have taxable income of about $50 each.
Lets take it up a notch though.
Lets say your kids were willing to work more or provide higher quality work. If you set up a family 401k for your business, each kid could make up to $23,000 a year before having to pay any taxes.
Keep in mind the IRS is going to look closely at your records and your kids ability to provide valid services, so make sure you do things right.