In this video, I want to explain to you a frequently asked question at the firm and that is, Is it possible to hire my family to help me with my online business? So we often get clients at our agency that run a family business, but they are not sure if what they are doing is considered legal or grey.
So I am here to set the record straight with you guys and let you know that having family members work in your business is perfectly legal as long as you meet a couple key conditions, so make sure you pay attention to this next part.
But first let me tell you a little quick story.
Not too long ago, the IRS noticed a popular trend where business owners would hire a bunch of family members to work in their family business.
Now you may be wondering well what’s wrong with that Alan?
You just told me it is perfectly legal? Well here’s the kicker…what they noticed on the record is they would have their 5 year son Timmy be the head of marketing and earning 90K a year while doing it and their 9 year old niece Sally was the logistical lead for North America and was furthermore gifted 200K of stocks in the company…yeah so the IRS didn’t like this misrepresentation so they created a special law called the kiddie tax in 1986 which cracked down on unearned income and investments.
So on paper this discourages transfer of gifts of stocks and other investment but it also establishes guidance that the job the family member takes on has to be legitimate and would be reasonable in the market.
So with that story, I hope it helps illustrate this point: If you want to hire your son Mark who has a marketing degree to be the head of sales and your aunt to help with paperwork since she’s an experienced receptionist, that is perfectly fine and actually a great way to reduce taxable income for you.
Family Income Splitting
So the concept is called Family Income Splitting. It basically allows you to split your income so it doesn’t all get taxed at the highest bracket. For example you have an ecommerce business making 300k Net Profit -What you can do with family tax splitting is you can recognize 200k yourself, and split the remaining 100k to other family members such as your son or nephew that joins your company.
Now altho your 200k will be taxed at a high bracket, the 50k for each of your family members fall into a lower tax bracket.
This way, the overall net profit is split amongst several individuals, which allows you to take greater advantage of the lower tax bracket and put more money in your pocket at the end of the day.
There are some other details to check for, but if it is something you are interested in, feel free to drop a comment below and we can maybe set up a consultation call to see if I can help you guys set that up.
Please make sure to take advantage of all these tax deductions that are available to you, as it can really really help support a stronger bottom line for your business- no one likes giving free money away right? ANd that’s what you are doing when you are NOT hiring someone that understands your business and how to take advantage of everything you are qualified for. So if your business is looking for an all in one solution to save on taxes and have amazing bookkeeping done on your behalf, then you can click the link in the description and book a free consultation call with FCF Agency, and we will see if we can be a great fit together.
Before this video ends I want to let you know that the tax code is made to help small businesses succeed and grow, so don’t be afraid of it!
I have small business owners come up to me all the time to tell me they are afraid to grow their business because they are afraid they will get taxed more, but that can’t be further from the truth.
Make sure you gain the knowledge and awareness of how to conquer the tax code and save yourself a load of money this year for your brand or business out there so you can keep scaling to the moon! We can’t wait to see you all succeed out there and be a little part of the journey.