If you’re like a lot of other small business owners in Utah, your family means a lot to you. You’ve worked hard to create an enterprise that will provide for your family’s needs — hopefully, well into the future.
Well, why not put your family to work for you? If you haven’t done it before, the new tax laws that went into effect due to the Tax Cuts and Jobs Act (TCJA) makes it an even better idea than ever!
The Advantages Of Hiring Your Spouse
If your spouse is helping out around the workplace without pay, your spouse is missing out — and so are you. He or she won’t gather any Social Security credits. Earning Social Security credits will allow your spouse to receive Social Security retirement benefits in the future — something that could eventually benefit you both.
Naturally, your spouse’s income will reduce the net profits your business takes in — which can significantly lower your business taxes. You will have to pay FICA taxes and payroll taxes, but your spouse’s wages will likely take less of a tax hit than if they were rolled into the net profits from your business.
The Advantages Of Hiring Your Children
Children under the age of 18 are huge assets to a family-owned business. Unlike your spouse, your children are not subject to FICA taxes if you’re operating either a sole proprietorship or a partnership with your spouse. (The rules are different if you’re operating your business as a corporation or are in partnership with someone other than the child’s other parent.)
As an employee, your child has a standard deduction that now can shelter up to $12,000 in wages, free from federal income taxes — which is almost double what it was prior to the changes in the law. Those wages give you another major tax deduction, which ultimately reduces both your federal and state tax liability.
A Few Final Thoughts
Getting your family involved in the business is smart for another reason (aside from taxes): It helps them appreciate what you do and understand the nature of your enterprise. It also gives you some backup. If you get hurt or get sick, your family may be better equipped to step in and keep things going in your absence. Plus, when the day comes that you decide to retire, your children will be more equipped to take up the reins.
If you’re struggling to understand the taxes for your business, let our family help yours. The friendly people at McKay’s Tax Services have been operating a family-owned business like yours since 2007, so we understand small business taxes from the inside out.