Many Home based business owners already know they can employ and child or spouse and get fantastic tax benefits by having the family member as an employee. Did you know that you can also employ your grandchild. The IRS rules allow you to pay contributions into a Roth IRA if you have hired your child or grandchild this summer (as described in Ch. 6 of “Home Business Tax Savings, Made Easy!”) So it is worth considering contributing to a Roth IRA for him or her also as part of the payments.
Can you cut your tax bill in half?
The IRS Tax rule is this: You can contribute up to $5,000, but no more than the child’s earned income as part of your home based business. Now this rule can work for any home based business, MLM like Vollara and Amway you can have your child or grandchild stuff envelopes. As long as they are doing something. I known one person who works the MLM home business, Vollara and uses their 11 year old son to post adds on craigslist and then print out all the responses. There are a lot of jobs children can do to earn their payments.
What you put in as a parent or grandparent counts toward the $13,000 annual gift tax exclusion, BUT if your employment agreement with the minor stipulates that the contribution will be made as an employee benefit, your contribution is deductible as a business expense, not a family member “gift.” This is a tax tip that is often overlooked.
Take a close look at the math — If a one-time $5,000 Roth contribution to a 16 year old earns a modest 8% annually (compounded, of course), it will grow to $217,000 by the time that “child” turns 65.
Did you get that? $5K put in one-time for a 16 yo turns into nearly a quarter of a million dollars by the time they reach retirement age.
The rules say you contribute up to $5,000, but not more than their earned income – but a minor can earn up to $5,800 tax-free! They could end up with $5,800 in tax-free earned income AND $5,000 deposited into their Roth account.
Withdrawals after age 59½ are tax-free, as are earlier withdrawals if they used to purchase a first home. That $5000 invested and forgotten about has turned into a nice bonus for a sunny retirement.
This is the tax benefit that just seems to keep on giving.
For more tax saving information in your home based business click here
