We pay them for misc. work done for a family business. The children are 14 and 9 and the total income for each is around $1200 for the year.
2006-10-15 04:27:34 · 5 answers · asked by RobH 1 in Business & Finance ➔ Taxes ➔ United States
Excellent question.
Doing what you are doing is an excellent way to save on taxes while teaching your children about business, taxes, and money. Encourage them to put the money into an interest bearing savings account and let them watch it grow.
OK, back to the issue at hand. You pay a 1099 for contractors and a W-2 for employees. Normally when children work for parents, they are employees. As long as they are doing legitimate work for your business AND you actually pay them, then you issue them a W-2. This is one of the rare circumstances where earned income is NOT subject to FICA if the child is under 18. Just like any other single person who is a dependent of someone, your children are responsible for doing their own separate tax return, but if the money they bring in is less than the standard deduction for a single person ($5,150 for 2006), they don't have to file a federal tax return. State taxes may be different, so check into them on your own. Of course, if they have other income they may have to file a return...see a tax adviser if you are unclear. But, if all their worldwide income comes from your business as W-2 wages and it is less than the standard deduction, you (as the payer) get to write off the entire amount from your business and your child (as the payee) owes no taxes on the income. Sounds great, huh?
However, if they are truly contractors (unlikely) and if you do pay them on a 1099, they will owe self-employment tax if you pay them more than $400.
Hope this helps :)
2006-10-15 12:00:51 · answer #1 · answered by TaxMan 5 · 2⤊ 1⤋
If you are not a corporation you don't have to pay employment taxes so you should give them a W-2. That way they can invest in an IRA (or you can on their behalf) It would be a great way to start saving for college. Don't issue a 1099 that would look like self-employment income to the IRS.
2006-10-15 06:54:25 · answer #2 · answered by daoco 4 · 0⤊ 2⤋
A W2 or a 1099; though a W2 has more benefits for your corporation. As they are under age 18, their income is now taxed at your rates, not thiers.
Ask your company accountant to help you plan the maximum amount they can earn without paying tax at your rates.
2006-10-15 07:12:25 · answer #3 · answered by lizzit 3 · 1⤊ 2⤋
No, you in basic terms declare your very own, the single that has your ss# on it, no longer the quantities to your babies. If yours is over the mandatory $3000 for the stimulus, record your very own return - and declare the babies as dependents.
2016-12-26 19:49:30 · answer #4 · answered by ? 3 · 0⤊ 0⤋
here a web site you can go to http://irs.gov or you can ask hr block about that
2006-10-15 05:25:06 · answer #5 · answered by rmike1973 2 · 0⤊ 2⤋