DO NOT Place Your Children on Payroll! Here's Why...

in this video i'm gonna explain to you why you should not place your children on payroll there are many tax benefits to hiring your children and many people know that the children on the tax returns can not only provide an additional tax credit but it can provide an additional tax deduction but if you're somebody that does not know how to take the payroll for your children i am encouraging you to not take this tax write-off on your tax returns it is a strategy that could cost you in the long run if you don't know what you're doing so let's dive in all right guys first off i'm a big fan of placing children on payroll i leveraged the children on payroll strategy regularly in our tax office last year we placed over a thousand children on payroll so it's not something that i take lightly and to be honest with you we are probably gonna continue to place more and more children on payroll into the foreseeable future because it's a great overall tax strategy but time and time again we are getting customers who are coming into our office that are doing this strategy completely wrong and if you're doing this strategy completely wrong not only can it cause an audit not only can it cause more money out of your pocket it can cause a detriment to the relationship that you have with your spouse and what you are trying to build long term for your family my goal is about helping you become equipped on how to build generational wealth by leveraging the united states tax system but if you're not leveraging the system the right way you will get burned so as a part of this video today we're going to go over the three pitfalls to placing your children on payroll and how you can protect yourself if you wish to take this right off let's dive in all right guys let's jump into pitfall number one not establishing legitimate work i cannot explain this any bigger than how i'm gonna explain it right now but if you have children and you want them to be underneath payroll inside of your organization corporation or llc they actually have to do something i know bummer big shocker but that's the truth you can't just write children off on your tax returns without your children actually being employed to do something many entrepreneurs get this idea that hey their children are assets to their company without actually making their children's become assets to the company an asset to your company is someone who can help turn around and get you going in the right direction whether it's via services products or marketing but what you're trying to do right now as a taxpayer is claim a deduction without placing your children into a particular role that gets them to become an asset inside of your business so what i'm going to first take the time to explain to you is why this is such a big pitfall when you go through an irs audit one of the most important things that you're going to have to provide is a trail of how you've made payments and a trail of your expenses one of those expenses being payroll linking your children to the payroll deduction is completely fine one problem that you will run into during your audit is what legitimate work was established for your child and this is what leaves a lot of taxpayers confused many taxpayers are taking this deduction based off of information that they heard and they haven't officially established legitimate work for their children so they're claiming their children on their tax returns as workers via w-2 1099 or even just employees and they're claiming this deduction without actually having their children do anything at all not pick up a staple not send off an email not even be on a flyer or a brochure and this could really hurt you in the long run part of the reason why children being placed on payroll as being scrutinized is due to the fair labor standards act the flsa is a department and organization that is monitoring children who are being employed and they want to make sure that these children who are being employed are not working in unsafe work environments or being asked to do tasks that are taking away from them to be able to get a education so there needs to be documentation around the work that your children are doing what ends up happening when you get into an irs audit is that you have no documentation to show the legitimacy of the work that your children are doing inside of your organization and this can disqualify your children from being employees underneath your organization causing you to refile your tax returns and pay the tax balance that was due plus interest fees and penalty fees i'll let you know right now when i have to go through this conversation with new taxpayers around how they're doing this incorrectly they're a little bit shocked to find out that they're gonna have to oh if they were to switch things back around so i'd rather have you not make that same mistake and establish the correct legitimate work from the beginning your children can do a wide variety of things and they don't all have to be labor-intensive your children can become your social media managers they can literally just be your office cleaners but if you do not figure out what that labor role is you're going to be in a situation where you could end up losing out on this deduction because you did not establish legitimate work all right guys now that we've understand that legitimate work is one of the big telltale signs to know whether or not you're going to actually be able to claim your child on your tax returns for a tax deduction the next pitfall that we have to understand is using a corporation to pay our children there are many taxpayers who have s corporations and if you're somebody that has watched my videos you know that i talk about the crossover period from when you need to switch from an llc to an s corporation to help save you money on self-employment tax but if you switch over to an s corporation or if you're somebody that's already in a c corporation you'll come to know that anytime that you place someone on payroll that there's always going to be payroll taxes withheld that's correct payroll taxes are social security and medicare and payroll taxes are at 7.65 for the employer and they're 7.65 for the employee as well which means that if you are thinking about placing your children on payroll inside of your corporation that's either an s corp or a c corp then you're gonna run into the same issues just as you run into those issues with paying yourself you're gonna have to withhold payroll taxes and this is a nasty little tax that can be avoided one of the main benefits of being an s corporation is that you get to take payroll as a deduction if you're a business owner but you'll come to know that when you place other people on payroll you gotta cover their payroll taxes as well it's a part of being a business owner but one thing to know is that if you place your children on payroll inside of an s or inside of a c corporation you will also have to pay payroll taxes on the amount of money you paid them now many of you guys are aware that the government allows for you to pay children up to the standard deduction amount without your children needing to file a tax return for the tax year 2022 the standard deduction amount for single followers is 12 950. so if you have a single child that's on your tax returns or if you have a single child that's employed by your business this is the amount of money you can pay your child without the child needing to file a tax return however it does not mean that you're avoiding paying payroll taxes on the amount of money that you paid your child so if you're paying your child twelve thousand nine hundred and fifty dollars you're paying fifteen point three percent on that amount in payroll taxes per each child causing you to cough up some money that you may have not expected to cough up so one of the strategies that we look to do is we look to establish a management company that can manage your escort or manage your c corporation that's either an llc or a sole proprietorship by having an llc or by having a sole proprietorship you can have your children underneath this business and your main operational company can pay your management company a fee record a tax deduction and the management company can pay out your children without your children needing to pay into payroll taxes because it was established as an llc or a sole proprietorship this is a way in which we can completely avoid payroll taxes by having our children on payroll and still be able to receive the tax deductions that we're looking for now if you're somebody that's like me and wants to take it a step further you'll look into establishing a roth ira for your kids have them max out the 6 000 and have that money grow tax-free and now we're really building generational wealth but pitfall number two is placing your children on payroll inside of a c or an s corporation all right guys let's jump into the third reason why many people should not be placing their children on payroll and the third reason is probably going to be the most important reason because most business owners are moving fast most business owners are bouncing around from project to project from clothes to clothes from sale to sale most business owners forget to document and if you're not a documentation king or queen then you will be caught up in a situation where you will lose when you try to take this tax strategy one of the biggest pitfalls to claiming your children on payroll is not documenting this correctly when i say documenting this correctly i'm not talking about the actual work that your children are doing because i know that you understand that it's important to document the physical work that your children are doing inside of your business but it's also important to document the paper trail of how you're paying your children and one of the things that i've noticed a lot of business owners don't do before they come to my office is they don't actually physically pay their kids yeah that's correct that's an issue because if you're claiming your children on payroll and you're not actually paying them then why are we claiming the children on payroll it would look like we're kind of running a fast one on the government and i don't want to run a fast one i want to be strategic i want to be strategic with everything that i'm doing so if i'm somebody that is intentionally placing my children on payroll and i need to show the intention of me wanting to pay the kids which means i need to have checks being written or money transfers being shown on my bank accounts and an actual pay stub being provided to my kids showing the amount of money that they were paid that year and if i have a corporation such as an s or c corp i want to be able to show how much payroll taxes are being withheld on their salary because this now shows the government that i'm actually doing the right steps to process payroll for my children who are my employees inside of my business it also shows the government i'm taking the right steps to show the government in the event of any irs audit that could come later down the road that i was a steward of my business and a steward of my finances i wasn't somebody that was just trying to pull a fast one on the government because i heard we can write off children i was someone who was going to follow the law listen to the law and then do it the way it was meant to be done with proper documentation books and records and if you're somebody that likes some of the stuff i teach on my channel then you also have to like being really good at being a steward of your finance being really good at doing your bookkeeping being really good at documentation because in order to play this game that i'm playing with some of my clients it requires you to have higher knowledge level on a documentation standpoint because this stuff that we do here we do it in confidence because of our ability to know what the irs is looking for if you understand what the irs is looking for you're just going to reverse engineer everything that the irs looks for and make sure you fall in line and that's how i plan out my taxes and how i plan out tax plans for everyday individuals who work with me inside of our company i want to be able to have you take strategies and confidence be able to go to sleep at night without having to worry even if you're in an irs audit because we did overkill from a documentation standpoint and one of the things that we have to overkill on we have to overkill from a documentation standpoint with our children if we are going to place children on payroll we're going to use our children inside of our businesses we need to know when they're starting inside of our businesses how often they're working inside of our businesses there should be a job description written out for your children on what they're doing and there should be a paper trail showing the amount of money that was transferred to your children which means you're gonna have to take it a step further you're gonna have to go open up a bank account you're gonna have to do a little bit of work to get this tax deduction oh my gosh so hard to become tax-free isn't it let's take it a step further and do the work because i'm the type of tax professional that's willing to do it with you if you're somebody that's watching this video and you're like oh my gosh this sounds exactly like what i want but i don't want to do this alone then i encourage you to schedule a consultation by clicking on the link below or at least visit some of my guides that i have down below i have a couple of courses and training modules that will teach you how to place your children on payroll and take this right off in confidence but if you're somebody that's trying to do this alone then i encourage you not to do so the payroll deduction is not a strategy that you want to do alone this is a strategy that needs to be executed with the right type of documentation and education and i'm here to provide that my name is carlton dennison if you like this video today i'd love you to do something for me go ahead like comment subscribe let me know how you're feeling about this video i look forward to seeing you on the next one where we'll continue to build our knowledge thank you [Music] you

Channel: Karlton Dennis

Views: 45,633

Keywords: nft, nfts, karlton dennis, taxes, tax, tax help, tax expert, tax advice, how to save money, how to not pay taxes, how to reduce taxes, llc, limited liability, limited liability company, non-fungible token, non-fungible, crypto, crpytocurrency, bitcoin, ethereum, stocks, trading, wall street, forex, entity, delaware, nevada, wyoming, s-corp, c-corp, how to start a business, your first business, payroll, children and business, how to pay your children, tax free, tax free living, children on payroll

Id: EBgUl1bILDQ

Length: 12min 31sec (751 seconds)

Published: Tue Jul 26 2022