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Old 10-10-2007, 04:39 PM
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Hiring your kids

I have seen many references to hiring your kids - which I did last year. Now I am trying to report this and am looking at my options. Can I 1099 my kids or must I W2 them? Thanks for any help.

Mike



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Old 10-18-2007, 10:37 PM
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Kids on Payroll!

The only way to pay your kids a compensation is through a payroll deduction, that is through W-2 wages.

The advantage here is the federal and state withholding would be considerably less than that for you, and this is where the tax savings strategy comes into effect. However, the issue becomes what is a reasonable salary, and you need to discuss with your CPA at what point in terms of wages paid, does the kids tax rate become that of your tax rate.

Nevertheless, a smart strategy especially for a nominal salary would not be subject to SE taxes as well. There is a special exemption for this tax. Please consult your CPA regarding this as well.

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