bake - February 2012 - 12

tax tips

The Kids Are Alright
Hiring a member of your family to work at your bakery comes with a number of variables to consider. While there are a few tax breaks for hiring your children under the age of 18, employed kin should be held to the same standards and expectations as regular employees. Taxation concerns are really no different for family. According to the IRS website, “Payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.” If anything, hiring your middle-school or high-school-aged children is an opportunity to replace an allowance. Plus, it can impart a standard and value for quality work ethics. However, once your son or daughter turns 18, they are subject to the same taxation as any other employee you may hire. It goes without saying, the IRS is not an organization of dunces. If you don’t play by the rules, you risk being audited and potentially receiving harsh penalties. Nonetheless, there are still a few legitimate ﬁnancial advantages to hiring your kids. Primarily, these advantages are feasible if both you and your offspring are similarly devoted to a common interest. For instance, if your son or daughter wants to attend college, and you equally want them to achieve a higher education, it is more affordable for you to ensure their employment so that they can afford school on their own, rather than pay their tuition from your salary. Not only will they pay for their education, but their earnings will be subject to less taxation than an owner’s salary. Hiring your kids, particularly at a young age, is an ideal opportunity to introduce them to business ethics, ﬁnancial experience and hard work, in addition to the bakery craft. Most advantages of employing family members are rooted in character-building opportunities and keeping the business family-owned, not saving on taxes. “Is your ﬁrst job as a parent to teach your kids about life or teach them how to optimize taxation?” says John Roeser, owner of Roeser’s Bakery in Chicago, IL. “It wakes them up to the fact that it’s not all proﬁt. Just because you’re making $7 an hour, doesn’t mean you’re taking home $7.”
Once your children turn 18, they are subject to the same taxation as any other employees you may hire.

“Is your first job as a parent to teach [your children] about life, or teach them how to optimize taxation?”
John Roeser, Roeser’s Bakery, Chicago, IL

Even so, it is critical to proceed with caution. An individual’s wage should be appropriately measured according to the talents and values they contribute to your company. Basically, a 17-year-old with a $75,000 a year salary will raise eyebrows. There are just as many regulations as there are ﬁnancial perks to hiring family members. There’s nothing wrong with beneﬁting from a tax break; on the other hand, there’s a difference between beneﬁting from a tax break and exploiting one.

12 < FEB 2012 | bakemag.com

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bake - February 2012

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