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Tax Benefits of Paying Your Children to Work in Your Rental Business

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Hiring your children and family members in your rental property business can offer tax benefits.  Here are some of the benefits you can enjoy:

– You can deduct the wages you pay to your children as a business expense, reducing your taxable income and your self-employment tax.

– If your business is a sole proprietorship or a partnership, and your children are under 18, you do not have to withhold or pay Social Security and Medicare taxes on their wages.

– If your children are under 21, you do not have to pay federal unemployment tax on their wages.

– You can shift some of your income to your children, who may be in a lower tax bracket than you, saving you and your family taxes overall.

– You can help your children save for their future by contributing to a Roth IRA or a college savings plan on their behalf, using their earned income.

Of course, there are some rules and requirements you need to follow to make sure your arrangement is legitimate and compliant with the IRS. For example:

– You must pay your children reasonable wages for the work they perform, based on their age, skills, and experience. You cannot pay them more than what you would pay an unrelated employee for the same work.

– You must keep accurate records of the hours they work and the tasks they perform. You may need to issue them W-2 forms at the end of the year and file them with the IRS.

– You must follow the federal and state labor laws that apply to child workers, such as minimum wage, maximum hours, and prohibited occupations.

Hiring your children can be a win-win situation for both you and them. You can save taxes, teach them valuable skills, and help them prepare for their future. However, you should consult with a tax professional before you do so, to make sure you are in compliance with federal, state, and local laws.

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