2012 Practical Tax Planning: Family Business
Do you have children? Are they on your payroll? If they’re not, and if the situation is right, you may want to hurry and get your children on the payroll. Do you give money to your parents or other relatives? If so, keep reading.
Pay Your Children for Business Chores. Did your under-age-18 children help you in your business this year? Did you pay them for their work? You should. Why? First, wages paid by the parent to the Parent’s under-age-18 child for work done in the parent’s business are both
- deductible by the employer parent, and
- exempt from payroll taxes for both the parent and the child.
Thus, if you operate your business as a proprietorship or a single-member LLC, you face no payroll taxes on the W-2 wages you pay your under-age-18 child. Second, your child can use the 2012 standard deduction to eliminate taxes on up to $5,950 in wages. Third, your child can contribute up to $5,000 to a tax-deductible IRA and exclude that amount from federal taxation.
Make Use of the 0 Percent Tax Bracket. In the old days, you used this strategy with your college student. Today, this strategy does not work with the college student because the kiddie tax now applies to students up to age 24. But this strategy is a good one, so ask yourself this question: do you give money to a parent or other loved one to make their life more comfortable? If yes, is your loved one in the 0 percent capital gains tax bracket? The 0 percent capital gains tax bracket applies to a single person with less than $35,350 in taxable income and to a married couple with less than $70,700 in taxable income. If the parent or other loved one is in the zero capital gains bracket, you can get extra bang for your buck by giving this person appreciated stock rather than cash.