Even if you are a one-person business and have no employees I can show you how your family can become your employees and save you tax dollars.



Your children can earn a paycheck from you rather than you paying them an allowance.

Can a business write off the costs of janitorial service? Of course! Since you have a business based in your home, hire your kids to vacuum, dust and take out the trash.

The expense is tax-deductible to you, and the income is tax-free to them. The tax-free limit is $5,450 for 2008. The amount is equal to the 'Standard Deduction.

Your child must be at least 6 years old.

And, if they are family members under 18, they are exempt from payroll taxes and the business is not required to withhold or to pay Social Security and Medicare taxes.

Your should use a formal Employment Contract to hire your family members in order to audit proof this part of your home business deductions.

In order to qualify, the wage-rate has to be "reasonable and customary" within your region of the country and within your industry for the type of work being performed.

So you cannot pay your kids $100 an hour for taking out the trash. How do you establish what is "reasonable and customary?" Get an outside company to give you a written estimate for the work to be performed, and then pay your family member approximately that amount. Or determine what a reasonable person might pay an employee or outside contractor for such services, and pay a similar wage to your family member.

Your employees (children) have to document what they did to earn the money, so have them fill out a simple "work log" with headings like:

Date they worked Type of work performed Amount of time spent working Hourly rate you paid them

Once they have filled in their 'work log' you pay them by check.

In order for you to deduct the wages your children earn as a business expense the law requires that you actually pay them but the law does not restrict how that money is used after it's paid.

Your children can earn up to $5,450 in 2008 which is equal to $104.80 per week.

Pay your kid $104.80 a week in allowance??? No way you say. Not so fast. Let's look at why you might be better off paying your children rather than just giving them an allowance.

Lets say you come up with the tax-free limit of about $104.80 per week worth of home-business related "chores" for them to do. They turn in their work log and you pay them by check.

Now it's time to open up an interest bearing checking account for your child in order to deposit and cash payroll checks. Deposit their paycheck every week.

When you open a checking account for your child the bank will require it to be a "joint account" since he/she is a minor. Although it's a joint account only you will be able to make withdraws or write checks on the account since your child is a minor.

Then you tell your child, "I will withdraw $10 (for example) out of each weeks pay for you to spend any way you wish, however, the other $94.80 will stay in the (interest-bearing) account to be used by you to pay for your________."

The blank can be filled in with words such as car, wedding, graduation trip or whatever you want.

You can pay for school supplies, tennis shoes, cars, trips and weddings out of pre-tax dollars! Who would have thought?

Congressional Law and IRS Code support this. It is 100% true and legal!