“K” is for Kids on the payroll.  Putting your kids on the payroll sounds like a shady topic, but it’s a legitimate way to save taxes and invest in their future.  First you need to have a business and that business needs to hire the kids.  If you work for 3M you might have a hard time hiring your kids at work, but for people with a small business or that work for a small business, hiring your kids is a real possibility.

Often there are administrative tasks, janitorial services or basic job functions which can be done by your children.  It’s a good way to introduce them to working or to introduce them to the family business.  The key here is that the kids need to be actually working for the business.  Paying them to do chores around the house like cleaning their room and washing the dishes is not the same as paying them for providing services to a business.

One tax benefit is you can open an IRA for the child and contribute to the extent they have earnings.  The annual limit for an IRA is now $5,500 so a child with $4,000 of wages could contribute $4,000 to a Roth IRA which can serve as a great vehicle for tax-free savings.

The second big benefit of having kids on the payroll is that there are no payroll taxes when you hire your children that are under the age of eighteen.  Considering the 2013 standard deduction is $6,100, the first $6,100 of earnings for your kid will have no income tax and no payroll tax which is a pretty good deal.

Taxes A to Z – still randomly meandering through tax topics, but at least for 26 posts in an alphabetical order.