Self-Employed Taxpayer Gets Break By Hiring Children

If you are self-employed and you want to hire
your children, is there any age limit to the children that you hire? Is there a
limit to how much you can pay them? Do you have to pay taxes on their
income?

S.T., Indianapolis

There is no upper or lower limit to the ages of the children you hire to help you in your business'However, hiring an infant to help with the bookkeeping is probably a bit of a stretch'Assuming the child is able to perform the job for which he is hired, you can pay the child and take a deduction for the wages.

The first tax advantage you will notice is that, as a self-employed, non-incorporated person, you save 15.3% self-employment tax on the amount of money you pay your child'In addition, you get a deduction, which applies to your income tax calculation, so depending on your tax bracket this could save you an additional 15% to 39.6%.

The child, if he is under age 18, is not subject to Social Security tax'Depending on how much you pay your child, there may not be any income taxes owing by the child either'There is no limit to what you can pay a child, or any employee, for work that is performed, assuming the payment is reasonable for the job'From a tax standpoint, the child is entitled to earn up to $4,300 for 1999 without owing income tax'If the child chooses to invest $2,000 in a deductible IRA, he can earn $6,300 before any income tax on his earnings kicks in.

Among other advantages, putting your child to work for you in your own business is a great way to save money, tax-free, for your child's college education.

IRS News: For those of you who can't
seem to get enough of income taxes, the IRS is proud to announce that it has
changed the Internet address of its well-loved web site, The Digital Daily, to
www.irs.gov . This new, brief address will no doubt become a favorite spot for computer-equipped insomniacs.

At the IRS web site, you can download federal tax forms (a life-saver when you're trying to finish your tax return as midnight, April 15th nears), read the latest tax news, and even meet the IRS Commissioner, Charles O'Rossotti'I learned, when I met Mr'Rossotti during one of my insomniatic visits to the IRS web site, that his wife's maiden name is the same as the last name of the actress who plays nurse Hathaway on the television show, 'E.R.'(Julianna Margulies)'Who would have thought?

We sold our home and had to rent for five
months, because our new home was being built during this time'Could you please
explain which forms we need to get in this situation, and do we need some type
of receipt from our landlord showing this expense? She did not provide anything'
Thank You,

A.J'Indianapolis

Although you had to endure some inconvenience by renting for five months, you can rest assured that the kinder, gentler IRS cares about your situation'Caring, however, is about all they'll do for you, as there is no deduction or tax benefit as a result of your housing dilemma'On the other hand, the Indiana Department of Revenue will come to your rescue with a small tax benefit'Any rental expense you paid while you were between houses, up to $2,500, will count toward the Indiana Renter's Deduction.

Claim the deduction on your Indiana income tax return by listing the name and address of your landlord, the address of the property that you rented, and the amount of rent you paid'You don't need any receipts from your landlord to verify this expense'Should the expense ever be questioned, which is unlikely, your cancelled checks will suffice as evidence of your payments.

Note: In a recent column I responded to
a question about how to value clothing and household goods that are donated to a
charity'An alert reader discovered and pointed out to me that the Salvation
Army has just this month added a new feature to its Internet web site 'a
five-page valuation guide that shows a range of prices for clothing, dry goods,
furniture, sporting goods, and miscellaneous items'The Internet address for
this list is http://www.salvationarmy-usaeast.org/locations/valuation_guide.htm . I'm sure this list will help many people in preparing their tax returns for 1999 and future years.

copyright © 2000 Gail Perry - Fun with Taxes


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