What are the benefits of adding my spouse or child to payroll? Paul L. Moffat, President and Senior Financial Planner at Arista Wealth Management, explains in the newest episode of Arista Advice!
Hello, welcome to Arista Advice! Question week is: "Paul, can I add my children on payroll at our company?" It's a terrific question and one that many business owners ask, and/or if you have a side hustle and you want to start a new business, it may be something for some additional income you may ask to get a deduction.
The first thing you have to ask is the standard deduction. The standard deduction for 2023 is $13,850. So the tax that you pay on that for Johnny is zero. Also, once you have that earned income, you can do something really neat! You can put them on the payroll or add them as an employee, if they are allowed to do that, but then you can also go open up an individual IRA account for them because they have earned income. And what does that look like? Well, for 2023, the threshold for that is $6,500. So you could take half of that money and go put it in an individual IRA for your child, and then it can grow tax deferred and can come out tax-free if it's a Roth IRA. If it's a traditional IRA, you can also let it grow and access some of that money for their first home.
Also, the retirement savings are significant. They can also start accruing some Social Security benefits by having some earned income. Those are two additional benefits by paying and putting your children on payroll, giving some earned income, and allowing them to contribute money to a Roth IRA or an IRA.
Hope this information is helpful. Please remember to go to a AristaWealth.com to get other videos, tools, tips, and resources to help you live a life of significance.