Did your tax advisor suggest putting your kids on the payroll to get the tax deduction? Or just the opposite, caution you against doing so?

Putting Your Kids on the Payroll to Get a Tax Deduction

We are talking about numerous ways to pay as little as possible in taxes every year at the November MAREI Meeting. Our guest speaker and his team at One Stop Tax Strategists shared these words of caution with us about paying your kids. Especially if what you are paying your kids is exactly the tax deduction or if you have more than one child and they all earn the same.

Some Words of Caution

We just found a court case that the IRS disallowed the kids’ payroll because it was exactly equal to the standard deduction, which is currently $13,850.

In 1998, Mrs. Alexander failed her IRS audit because she claimed she was paying her daughters $7/hour and both daughters earned exactly $4250. The IRS felt the $4250 was a predetermined amount and it matched the standard deduction in 1998.

Some of you might be paying your children an hourly wage for office duties, cleaning, etc. If that’s the method you’re using, it might be better to pay your children slightly under the $13,850 allotment for the year.

In this case, the IRS examined what people did and what they were paying them for. Be sure to always keep records of what your children did and the amount they were paid.

Want to learn more about the kids on the payroll strategy? It’s number 3 on the top 7 strategies list from One Stop Tax Strategists and will be one of the topics we discuss at MAREI on the 14th. We hope you can join us and maybe pay your kids to attend and hold your coat. They just might learn something.