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| | The **The Business Consortium** Network is not currently active and cannot accept new posts | | Wealth Thursday: Hire Your Kids to Save on Taxes | Views: 314 | | Oct 25, 2007 2:19 pm | | Wealth Thursday: Hire Your Kids to Save on Taxes | # |
kamckinley | | Good Morning! This is my first post as the new Financial and Tax Planning Expert.
I will be holding a free teleseminar tomorrow on tax tips for online business owners, so I wanted to share one of my favorite tax planning tips, which I'll be covering in detail in tomorrow's teleclass.
Hire Your Kids to Save on Taxes
Many of you probably have children that are old enough to help out in your business. Did you know that hiring your kids in your business can actually help you save on taxes?
Here's an example:
In 2007, you could pay your child up to $5,350 (the standard deduction amount) without either of you incurring a tax liability. Suppose you’re in the 28 percent tax bracket and you pay your 15-year-old son (Junior) $5,000 over the course of a year to help package and ship items in your eBay business.
You get a business deduction for the wages paid to Junior, saving you $1,400 (28% of $5,000). If you're a sole proprietor, you save even more in taxes because this reduces the amount of profit that is subject to self employment taxes (15.3% of $5,000 = an additional tax savings of $765).
Since your son’s earnings are less the standard deduction, he does not owe income taxes on his earnings. Even if you paid Junior more than the standard deduction, you would still save taxes. Since Junior is most likely in a lower tax bracket, his earnings would be taxed at 10 percent or 15 percent rather than 28 percent that you would pay on this income. This is called income shifting.
In addition, because Junior is under age 18, you do not have to pay Social Security, Medicare or Unemployment tax on him, like you would with a regular employee.
You could take this strategy even further by opening an IRA for your son thereby sheltering even more income from taxes.
This is a great strategy if your children are old enough and are interested in working in your business. The only thing to watch is that your children have to actually do legitimate work in the business, and you have to pay them a reasonable wage for the work they do. You can't pay them $5,000 a year to do household chores or just to empty the garbage can (even if it's your home office trash can!).
I hope you enjoyed my first tip as the Financial and Tax Planning Expert!
Kristine McKinley, CPA, CFP
Free Teleseminar - Minimize Your Taxes and Maximize Your Profits
http://www.onlinebiztaxtips.com/
Private Reply to kamckinley | | Oct 27, 2007 12:59 am | | re: Wealth Thursday: Hire Your Kids to Save on Taxes | # | 
Julie Bestry | | And it was a GREAT teleseminar, Kristine. One question I'd hoped to ask, but by the time I got un-muted, it was a bit too late, related to what you were saying about sales tax. Can you explain, either here, or in a future post, whether digital products (teleclasses, audios, ebooks, special reports, etc.) are ever taxable, in terms of sales tax.
Is the question of whether state/county sales tax applies to non-tangibles dependent upon the locale?
For example, I was told by my county treasurer that I need not collect or pay sales tax because I provide a service of expertise without any tangible goods. When I asked about information products, she said that in tangible form, it might be taxible depending on my method of distribution, but that in digital form, it was not. I was dubious, not necessarily of the distinction, but of the interpretation. If I sell an ebook and the client prints it out, there's no sales tax, but if I print it out for the client, it is?
I'm looking forward to hearing you expand on this issues, as I'm sure many of us either are already, or hope to be, expanding our digital offerings.
--
Julie Bestry, Certified Professional Organizer®
Best Results Organizing
"Don't apologize. Organize!"
organize@juliebestry.com
Visit http://www.juliebestry.com to save time and money, reduce stress and increase your productivityPrivate Reply to Julie Bestry | | Oct 27, 2007 1:07 am | | re: re: Wealth Thursday: Hire Your Kids to Save on Taxes | # | 
Susan McCool | | Awesome question, Julie! I am interested in the answer, also :)
Susan McCool
Spotlight Marketing & Design
...Guiding balanced business owners to enjoy the spotlight of success!
http://www.spotlightmarketinganddesign.comPrivate Reply to Susan McCool | | Oct 27, 2007 11:22 pm | | re: Wealth Thursday: Hire Your Kids to Save on Taxes | # |
kamckinley | | Hi Julie,
That is a good question, but unfortunately, it's not one that I can answer. Every state has their own sales tax laws, and they all vary. So even if I could answer that question for one state, the answer would be different for all the other states.
However, my assumption is that most states have not addressed the question of how to treat digital products yet. I haven't checked with my state tax department yet, but I was planning on treating any digital products I produce as a "service" which is not subject to sales tax in my state. Until they address digital products, I think this is a safe assumption.
I'm sorry I wasn't more help - especially since this is the first question addressed to me as the tax and financial expert - but since all states have different sales tax laws, you really need to check with your state tax department if you have specific sales tax questions.
Kristine
Kristine McKinley, CPA, CFP
www.onlinebiztaxtips.com
Private Reply to kamckinley | | Oct 28, 2007 4:44 am | | re: re: Wealth Thursday: Hire Your Kids to Save on Taxes | # | 
Linda Hall | | I don't know how many have been watching or reading the news lately but the government is shooting for national taxation regulations regarding internet sales.
It's a little confusing but what's being proposed is an across the board tax that will make all products sold via the internet taxable at one rate regardless of the state you live in.
It's my understanding that even digital services may become taxable as well.
In the meantime, however, I have links to many states at my forum if you'd like to check the revenue and taxation laws in your state.
You can locate them by going to http://crosscountry329.proboards78.com/index.cgi?board=links and clicking on your state, then any sub-topic that pertains to what you might be looking for.
The forum only opened in July so not all of the state links have been researched and posted yet but, if you want to see if your state is there, feel free to take a look.
Wonderful topic, Kristine. And I have to agree with Susan, Julie's question is a very good one.
Linda Hall, Owner
http://crosscountrybookkeeping.com
http://squidoo.com/crosscountry/
http://crosscountry329.proboards78.com/index.cgi (T.R.A.I.N. Forum ~ NEW!)Private Reply to Linda Hall | | Oct 29, 2007 1:05 pm | | re: Wealth Thursday: Hire Your Kids to Save on Taxes | # |
kamckinley | | Linda mentioned national taxation regulations regarding internet sales.
This has been talked about for years, but nothing has been resolved yet. There is an actual project called the Streamlined Sales and Use Tax Project.
Nolo.com has some info on this project here: http://tinyurl.com/2lbv7y
Kristine
Private Reply to kamckinley | | |
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