Is Child Labor Legal? - Putting Your Kids on Payroll
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- čas přidán 2. 06. 2024
- For those of you who have kids under 18 and own a small business LISTEN UP!!!
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Ive had my own business for 5 years and never ever thought I can do this. This is why im so upset this is never taught in schools. Thank you so much. I will definitely be spreading this info to my friends and family.
I just opened 3 months ago, and I'm prepping to hire my 7 year old. At least you're doing it now! ❤
“Outside Labor”
-Under 18
- tax free so no need for w2
-Kids own debt card/credit card
-Transfer funds from business account to kids account
So I am just seeing this now, my children are 9, 8, and 5 years old. We have a pretty well established business of 8 years. I sent this to my accountant as well as my financial advisor. We just found out December 2021 that we could even start doing this, but no one seems to know how to start. This was VERY informative and explains how friends and colleagues have their children starting small businesses from a young age! We are young yet and still learning a lot about business, neither of us went to business school and we built this business from the ground up... Literally from pinching pennies to overseeing 12 employees. We definitely want to leave a legacy for our children, since both of us grew up with nothing and our parents never thought ahead for us. (Literally no savings or college funds and our parents still struggle to get by even with a good earned income). THANK YOU FOR POSTING THIS!
Not all CPA's are created equal. Mark is awesome and I've worked with is firm many times for various things through the years. You don't need Mark personally if you can find a CPA that actually specializes in businesses and investors and isn't just a W-2 mill. A great CPA asks "how can we do that" not "you can't do that." There is a wide playing field before anything is out of bounds - the IRS knows what normal looks like and so does your great CPA - no reason to fear an audit as your chances are near zero and no reason also to fear one if you get one with a solid plan behind your return. A great CPA MAKES you money. Let's help get this country grow the habit of getting plugged into experts to play the game for real instead of just hating on the "rich." Thank you Mark for your generous education.
Thank you for the generous comment! I'm so glad you have found our services to be helpful. You are very welcome for the videos and other education.
Except that the information he is providing is not true.
Not getting caught is different from it being right.
@2:29 Three way to pull this off (RULES
This is good information! Thank you.
I LOVE YOUR BRAIN! Thank you, you are such a blessing! I’m so glad I found you!!
This is Gold!
Thanks for the update.
No problem! Thank you for watching!
Thank you so much. I have been watching video after video to see if I needed to go through the hassle of w2 payroll for my 6 year old. Outside Labor. beautiful.
Great Job! Thank you so much for taking the time!
No problem! Thank you so much for watching!
I pay them and they deposit toward a Roth IRA. Awesome
@BringRayn , do you file return for your kid to keep paper trail for Earned Income? If not, how and what document/proof of Earned Income are needed to show the eligibility for contributing to Roth IRA?
@@mikepat3876 That's the responsibility of the Family Management Company. The whole reason you set it up is for the record keeping (recording hours, tasks, detailing job description, etc). Those records will show its legitimate "earned income." Now, the money you deposit into their Roth IRA is technically tax free (because it's below the individual standard deduction) but the IRS considers it after-tax money (because its a ROTH IRA). So it's a tax write-off to the C/S corp, tax free to the kid, is deposited tax free to an after-tax account and grows tax free forever!
@@mikepat3876 yes. file a w-2 and return as the paper trail
Great information!
Thanks for watching!
🤯 Thank you! 💪🏾🌟
Great video!
Excellent video Mark - always a good job explaining boring tax issues in a very friendly and easy to understand way!
Thank you so much!
Dude as always you're awesome with your videos, full of value!!!
Thank you!
You're awesome! Thanks for watching!
Great tip!
Thanks Mark!
My pleasure!
This guy is the best!
Excellent video! Complex topic explained in simple terms. That is the mark of someone who really knows their stuff.
Thank you for watching!
wow you just changed y kids lives with this video. thank you so much. ive shared this with every business owner i know.
Glad I could help. Please keep sharing this video with anyone who you think will benefit from it!
Thank you Mark I have three daughters I’m going to set something up for them today!
Kiana, that's great to hear!!!
Phenomenal content.
Thank you so much!
Good video and thanks for mentioning not having to deal with a W2.
You're welcome! Thanks for watching.
Great video
Glad you enjoyed it
Wow !! Amazing info !
Thanks for watching!
Mark J Kohler I’ve booked an appoint with one of your professionals for Monday, with my unique business situation I’m confident you guys will relieve my stresses ! Lol
That's awesome! I am excited for you!
Head Exploding Emoji is RIGHT...lol I Like You!!!
HI Mark,
this video was great! I am helping a client with this task, and this was so helpful. So just to be clear, if it is an LLC we can pay them directly. Outside labor expenses?
Scorp we would pay another management corp.
Would the same scenario apply for paying grand kids through the business?
Live in CA... 12,550 is SD on 1040 in 2021, what about on CA 540? Cant find anything that speaks directly to State of CA's position of this strategy. (paying wages to dependent child from sole prop.) Very inspiring Mr. Kohler. Sitting for CPA soon, wish me luck!
The penalty for not filing a W2 is a set dollar amount, not a %. You're confusing it with the 941 penalties, those are a percentage of the tax owed.
Is this true? im still trying to understand what I need to file. So I dont need to do a 941 and 940 but i would a w2?
Does the sole proprietor for the kids have to be formalized and registered with state?
Amazing
Thank you! Please subscribe and share!!
Does the family management company have to be LLC or just sole prop?
I have been to Oklahoma City many times and there are no farms within the city.
Mark, I never thought I could get excited learning this stuff. You make interesting and I appreciate all your help. I just started a small cleaning business and like so many, setup a sole proprietorship. I don't anticipate grossing more than $1500/mth to start with. Should I stay with this setup or convert to LLC now. I'm one month in.
Beautiful
Aren't real estate companies required to file 1099-misc for all contractors above a few thousand or whatever small amount?
To clarify, if they don’t make $12k yr they don’t have to pay any taxes.
My question, are they still a dependent on my taxes as well?
If they do file, would it hypothetically increase their Social Security if it’s still around? If not, is it because it not withheld from their payments?
Did you ever get this answered? I have the same question. I beleive we can still claim as a dependant.
Should I form a LLC for Family Management Company?
Yes
How do I set up a family management account
What is the best way to pay my children from a rental LLC for tax audit purposes? Can I pay them directly with cash? Do I have to write a written receipt? Do I have to open a bank account in their name and transfer the money?
Amazing how the US and UK tax are becoming even more similar.
I know right?! Thanks for watching!
While having an LLC and not issuing the w2, can I still fund the ROTH IRS without proof of income for my kids?
That is why I use a tax PLANNER professional and a tax attorney. Many ways to cut taxes.
I can't agree more!
Is this strategy still good for 2022? Sole prop FMC (LLC) receives pay from S-corp, FMC pays the kids via transfer into their own accounts. Can you provide any clarity on city or state taxes, how they will react when paying the kids in this way? Can you explain more about the FMC?
Great video - I recommend this strategy too for my SMB clients. Great way to get money out tax free.
so how do I pay my child then if no w2 is needed do i just write them a check and let them cash it
@@pipfanatic9719 you find out yet bro? Since no one answered? Asking same question here
Has anyone figured it out? I’ve been on google/CZcams forever trying to answer that question😂
@@brcleaningcompany2566 I think (dont know for sure) you create a custodial/joint checking in their name and you transfer the funds with a paper trail. Is that what you were asking?
So is sole "proprietorship the best/easiest way to get the kids on payroll..Asking because that is what I have.
Nobody is explaining how to do the paper work though but when u file???? What’s the process??
You need to contact a CPA or tax attorney. However, I found a pretty good guide online.
@@jessicaeccles6172 but you didn't share it. How grand of you.
PLEASE SHARE IT 😅
You just deduct it on your taxes and make sure your kid has the bank account setup so the money is in there name not yours, obviously you can be the guardian on the account so you can control it for them
@@disruptceo Did you need to file 940/941 or end up issuing a w-2?
What about step children, neices, nephews, and or grand children will the same apply??
Where on the schedule C do annotate "outside labor?" Is it line 26 or 27a? Thank you! Amazing talk and topic!
Mark,
I am a fan! I listen to both of your podcasts regularly.
I am now ready to employ this strategy.
Is my step son an eligible child to be paid from my LLC? He lives with me and would like to employ him but unaware of the legal restrictions for blended families.
Thanks.
Are they still dependent when you file for taxes?
QUESTION : 1) So what would the CATEGORY / EXPENSE for the S.CORP : SPOT LABOR? ..2) What is MANGEMENT FEE? what are we talking about? How much? Thanks for your help!
Ughh... HUGE question. Let me say, I have a book on this, my 8 steps workbook (all on amazon)...or if you know you are a candidate...PLEASE schedule a consult with my accounting firm or get your own accountant to pull there head out and help you. 🙄 This is a common strategy and more CPAs need to get on board.
Thank you for this video. So easy to follow. Used Kristie Parker with his law firm and she was AMAZING with explaining everything and giving advice to my husband about the current and future structure of his companies. I could go on and on but definitely legit and I love his channel and his team!
Has anything changed for 2020/2021? What if a child lives out of state? But i have a online business or do a lot of e-commerce and amazon, i usually would outsource a lot to virtual assistance overseas. I think i rather hire my child,
My child lives in Florida I’m in Boston, can they still be claimed by the other parent if i hire my daughter
I have a small business LLC and my 10 years old and 4 years old been helping with cleaning, labeling, and customer service (greeting and explaining things to customers, cos we sell oriental groceries), and ads on Facebook. I would like to do a minor Roth ira for each of them. I already have Vanguard Roth IRA for myself but my husband just has 401 K from work. in order to set up a minor Roth IRA for each of them, what kind of tax paper shall I have for them when we do a business tax return end of the year?
Thanks in advance for answering.
Can it be a service business? Like helping clean houses
I would say you need to check your local labor laws to make sure it's OK as far as they are concerned but yes any type of work they can safely and legally do should be fine.
Can I do this with my little sister or does it have to be the parent? And what if she’s currently 18?
I'm just now coming across this video, 6 years after it was published. Besides the standard deduction changing, does everything else still apply? Thanks!
My wife and I have an LLC partnership and my CPA had us setup another LLC to pay my kids from. Exactly like you explained on this video for S Corps. However, it looks like we don't need to do that if we are an LLC partnership. Is there a benefit for doing this out of an other entity? Or, should we close that out and just pay them directly?
Great question! there is a lot to it! I'd say your best bet is to watch some more of my videos, go to markjkohler.com/blog/ and find an article I have written, and/or give my assistant Rosalie a call at 435-586-9366 ext 2024 and have her point you in the right direction.
Can anybody who has done this let me know if you are not creating a W2 im assuming you did not do a 940/941 (quarterly/annaual) federal forms? Thanks!
If I have an llc but I am taxed as an s Corp, would I need to create a separate sole proprietorship or could I pay them straight from the llc?
I’m trying to formulate an llc in Pa where it’s legal for minors to part own. Do I just sign for him on the articles of organization?
What tax code is the outside worker on?
Can you do this if your only business is rental property owned through LLC’s?
Thanks for the video! In terms of linking your childs ROTH IRA to your real estate LLC . If the LLC was ever sued could they come after the ROTH? IF you are paying your child via a ROTH IRA for working in your real estate business but their ROTH is not a business partner or does not own that LLC would that ROTH be vulnerable in the vent that LLC is involved in a law suit?
Laws regarding retirement protection in the event of lawsuits vary state by state. The federal government has laws in place to protect many retirement accounts, including 401(k) and employer-sponsored plans. When it comes to IRAs, states have a greater jurisdiction in deciding what is up for grabs in the case of a lawsuit. Registering as an LLC would hedge against the risk of having money taken from your ROTH IRA in case of a lawsuit, but it would not give you 100% protection.
Would I be able to this for my 12 year old brother?
Is there a law that says you can't pay them generously?
To have an IRA they would need a W2 though right?
I still suggest issuing the W2. The child can contribute to a ROTH IRA. Without earned income, they can't do that.
whats the negatives of issues the w2? Just the hassle of registering with the Social Security Admin? If you have a child under the standard deduction arent you just filling out like 1 box on the form? Just trying to figure out the angle on not needed the w2. (I already have an EIN for my LLC)
can this work for Grandkids?
Great video Mark, thank you. But I need some clarification. My husband has a SCorp I have an LLC. Should I still set up a Sole Proprietorship? Or can I have the scorp make payments to the LLC for this purpose?
Hey Crystal! Thanks for watching!! It's hard to give the best advice in a short comment. Please reach out to my scheduling assistant Emily at emily.delarosa@kkoslawyers.com and she can help get you scheduled in a consultation, to discuss putting your kids on payroll.
@MarkJKohler if we pay out of the FMC do we need to give a minor a W2?
Any update video planned for 2019?
Great suggestion! I will consider it. Thanks!
@@MarkJKohler I just figured since there are a ton of changes happening for 2019, this may have been one of them. ;)
Also, note that it's the SAME strategy and rules, except it got better. The Standard Deduction is now $12,200!!
I just have one rental property, Do you think it’s a good idea to form an LLC? I believe it costs $800 a year here in Cali.
To get your question answered, please submit it to podcast.mainstreetbusiness.com/ OR if you want to get set up with one of our amazing Tax Advisors to dive further into your questions, please head to markjkohler.com/tax-advisor-network/ - thank you!
@MarkJKohler hello mark thank you much for the details. If you don't mind if I employ my kids would I need to file a w-4 and an I-9? I know I don't need to issue a w-2 but I want to understand whether I need to file w-4 and i-9. Thank you in advance!
To get your question answered, please submit it to podcast.mainstreetbusiness.com/ - thank you!
@@MarkJKohlerthank you! How do I know I'd the question is selected or answered?
Do you have to file 941 quarterly? if you haven't hold any taxes from your kids
Hi David! Thanks for watching! This is a pretty in-depth question. To give you the advice you need, please reach out to our firm to schedule a 20 minute paid consultation with one of my attorneys. Call 435-586-9366
@@MarkJKohler
Mark,
Your example of FMC, does this mean they (kids) need to create a business license since they are an outside 3rd party company?
Hi David i have the same question did you ever get an answer? Thanks!
If my kids help me in my small business, does my business have to make a certain amount per year in order for me to pay my kids? I’m just starting out so I’m not making much
What did u find out
Nope
Excellent video. One question. In a single member LLC for rental property how can the LLC pay kids? Does the LLC need to issue W2 or 1099 to kids and if so does the LLC need to file its own returns or can it be pass-through?
Hey there! I have past videos on this with more information that you can check out, or if you would like to dive deeper into you questions - you may want to get set up with one of our amazing Tax Advisors. Please head to markjkohler.com/tax-advisor-network/ - thank you!
Hey! I have an Amazon business that I just started last year. I spent almost 10k and my return was only on hundreds. My question is will I get any money back from my tax return so I can reinvest?
How’s it going so far? I do amazon FBA mysefl, mainly books,,, what part of amazon do you do if don’t mind me asking
@@brcleaningcompany2566 how’s it going today
Hello Mark,
My name is Ford, and I am leaving my current company as an IT Manager as W-2 employee.
On January 10, 2022, I will be starting with a new company but with a caveat that I will be hired as a CONSULTANT (1099 basis) for a few months, then convert/hire me as a full-time W-2 Employee thereafter!!
Note: My Rate will realize between $40K to $50K for those few months in 2022.
Question: Is it worth me getting an S-Corp? (i.e. Will my initial cost for setting up the S-Corp + your Service cost for Tax filings (Form 941) etc... worth spending vs me just keeping it as a Sole Prop?)
Why con;t we have to issue a 1099 to kids out of the SP or LLC?
I do love it and love you for the EDUCATION of The Indian Nation will be redeemed all shall be reviled
Does outside labor count for any small busniess??
Hi Mr. Kohler, can I do this for my parents? I have an online business plus I have rental properties. Could the llc be set up in such a way where I pay them monthly from my income? They live in another country.
Yes, that family member can be a spouse, sibling, parent, or a child.
@@MarkJKohler thank you I appreciate you.
Hey Mark ! I have a question. You talked about “ scam “ …. Is it really a scam or illegal to add family members on your payroll that DONT work for you ? To use the as “ payroll expense “ ??
Thank you
What do you think? You're literally asking if it is illegal to lie on your taxes.
Does this work with grandparents business?
How would you set Roth IRA for kid as a sole proprietorship without a W2?
To get your question answered, please submit it to podcast.mainstreetbusiness.com/ Thank you!
What about grandchildren?
Hi Mark, how much is reasonable to pay the family management company per month? I was thinking like $45 per month so it's under the $600 threshold so I don't need to send a 1099 to myself
Why wouldn't you 1099 yourself, you have the income offset by your childrens salary. You only need to 1099 if you are an S-Corp. Watch again, if you are a plain llc no 1099s are needed just the evidence of the work and transfer. Keep it under 12k per child and reasonable compensation and you are good to go.
@@redinsight6725 I'm an S corp
OK so as far as when I am entering this under my business expenses I just put it under a misc line of "outside labor"? Im just not sure exactly where to expense this.
Did you ever get an answer I too have this question and have not found a direct answer. I think they mean the schedule c you add a other expense and then identify it as "outside labor" and then if audited you provide the money transer, timesheets, and job duties. But im learning too.
Does all of this apply to step children that live with you?
Or neices and nephews?
Hi Mark, once I pay my kids (3 and 5 yr olds who act and model for my film business) via check or transfer to an account in their name, how can I legally allow expenditures from that account?
Hey there, to get your question answered, please submit it to podcast.mainstreetbusiness.com/ - thank you!
is the can be applied only if we run a business.? or salaried can do this..
To get your question answered, please submit it to podcast.mainstreetbusiness.com/ - thank you!
My brain hurts learning this stuff lol
Can i do this with my nephew?
Question here. Do I have to pay my kids for working in my business?
Back then I would work for my parents for free and its very normal, is it still the case now? By law do parents have to pay their kids for working?
Are you forcing your kids to work? If so, that’s a huge problem. If they are working by choice, then I believe it would be better to pay them, so that they learn a little about the world.
Can I hire you for my CPA?? I need drastic help...smh