HomeSmall BusinessYou could score a tax break for hiring your own kids this...

You could score a tax break for hiring your own kids this summer — if you follow the rules

Mixetto | E+ | Getty Images

If you’re self-employed, hiring your kids could provide tax benefits — provided you follow labor laws and IRS rules, experts say.  

Small businesses hiring their own children is a popular topic among social media influencers on platforms such as TikTok, Instagram and YouTube. But tax professionals say they are often battling misinformation from such posts.

“Most of the videos on TikTok have a kernel of truth to them, but they’re embellished or it only makes sense in very specific situations,” Matt Metras, a Rochester, New York-based enrolled agent and owner of MDM Financial Services, previously told CNBC.

More from Personal Finance:
This retirement account can offer triple-tax benefits for teens this summer
A 20% down payment is ‘definitely not required’ to buy a house, economist says
Elizabeth Warren wants student loan borrowers to know bankruptcy is easier now

“But when you have a 60-second video, you aren’t trying to convey that nuance,” Metras said.

If you’re planning to hire your children this summer, here are some key things to know, according to financial experts.

Employing your kids can be ‘tax-savvy’

If your child’s income falls within the limits, they may not owe any income tax, which can be a win-win.

Sean Lovison

Founder of Purpose Built Financial Services

Once your child has “earned income,” or wages from employment, they can make Roth individual retirement account contributions, which can be powerful for younger savers, experts say.

There’s a triple-tax benefit for kids: They typically pay little to no taxes on contributions, plus growth is levy-free and withdrawals are generally tax-free in retirement, according to CFP Carol Fabbri, managing partner of Fair Advisors in Conifer, Colorado.

“It is never too early to get in the habit of saving,” she added.

However, you need to watch the contribution limit for 2024, which is your child’s total earnings or $7,000, whichever is smaller.

What to know before hiring your kids

Content Source: www.cnbc.com

Related articles

Latest News