Some people would go as far as to “forget” to declare some of their income. I think we’ve sufficiently discussed the repercussions of not declaring all of your income in the previous post. This time, I’d like to bring up the idea of engaging in certain practices that I personally find questionable.
At the top of my list: hiring family members to work for you so that you can make some tax savings because of medical health insurance and wages. Here’s one source which actually suggests these two points. One, it suggests hiring your spouse as an employee. As the employer, you can then provide medical benefits to your employee and then enjoy an additional tax deduction. Two, it suggests hiring your children:
Sole proprietors who hire their kids to do data entry, answer phones, clean the office and perform other business-related activities can deduct their wages on Schedule C, as long as the compensation is reasonable for the type of work performed. Wages paid to the children are exempt from Social Security tax if they are under 18 and are not subject to federal unemployment tax if they are under 21.
In addition, unless the child has a lot of unearned income, chances are that he or she won’t owe income tax on the wages, which lowers the family’s tax bill considerably. Also, a parent can make a contribution to an IRA or a Roth IRA for them based on their wages.
I don’t know if I am being too conservative here, or maybe I am just missing something. I’ll throw the ball in your court, guys. I’ve got two questions for you:
- What do you think of these two suggestions as ways of trimming your tax bill?
- Are there any tax deduction “techniques” that make you feel uncomfortable? If so, what are they?
Photo credit: Foxtongue
I don’t have a problem with hiring children or a spouse. If you look outside freelance-type work, think of the restaurants, stores, and other family businesses in which the children are expected to work. I grew up on a farm, as did many of my friends. We were expected to do a certain amount of work just to aid the family, but at some point, parents pay their children for “above and beyond” labor. Most high school boys I knew worked for their family in some way, especially during the summer months. I don’t think there’s anything shady about that set-up at all.
Christina Crowe ( @CashCampfire ) says
Like Brandi, I also don’t have a problem with hiring family members or a spouse. I actually think it’s a good idea, especially since this is already done in restaurants and other home businesses.
I do have a problem with “forgetting” to declare income, though. Something like that is bound to be found out eventually.