How the TCJA benefits parents, who employ kids?
Out of the many acts and regimes defined by the government in recent times, the one that is gathering positive feedback from small business owners all across the country is the Tax Cuts and Job Act. Why? Because of their unanimous decision to support small job owners who are employing their kids through a tax advantage.
If you are a self-employed individual who has just added your kids to your workforce, let us tell you something, it’s not just going to be good for your kids as a learning experience, it can be way better for your business and the tax implications that you might have to deal with!
If your kids help you with your business in any manner, be it specified tasks, sub-ordinate tasks, or even if they have just started to learn the art of doing so from you, it would be a great idea to add your child to your business payroll. If you intend to pay reasonable wages to your kids on the basis of their work is done, then hiring them on payroll can help you save tax while letting you keep all your hard-earned money within the business and not letting it go.
A recent revision in the Tax Cuts and Jobs Act (TCJA) allows a significant standard deduction amount that was recently authorized for teenagers who happen to receive fair wages or any other kind of income for the work done by them. The amount declared as the deduction was $12,550 which was stipulated and duly indexed by the IRS Authorities keeping inflation in mind. For the year 2020, this amount was computed at $12,400.
Taking the simple step of adding your employed kids to your payroll will help your child eliminate any tax on his first income, based upon the slab he falls in. Not just this, but doing so will also help in decreasing the tax burden on the self-employed parent who is bound to do taxes.
Working as a self-employed freelancer can often be tough. Even though it gives you the freedom to choose your work and the fact that it can be extremely rewarding in the long run, it is a given fact that dealing with taxes can be a bit of a tricky business as a self-employed person. Keep an eye on our blog to uncomplicate your financial and tax woes.
Even though it may sound a bit too ridiculous to use your own child as a tax shelter, but it is indeed one of the easiest and the most practical ways to save up on tax amount time and again.