Pay Your Children On Your Payroll

If you are planning to get a divorce or beginning marriage journey, you should know of tax-reduction strategies. At least have a plan for the next five years. Also, if you have children you intend to involve in your business, you should be planning how to give money to friends and relatives.


  1. Put your children on your payroll

If your children have been helping you in your business, you need to pay them.

You should process a formal payment through a W-2.

You should pay through W-2 for the following reasons:

First, if a parent pays children below the age of 18 for work, it is considered to be within form 1040 schedule C business.

The amount is subject to deductions by the parent as the employer

Both the parent and child are exempted from federal payroll taxes

In this case, operating a business as a sole proprietor or within confines of LLC on schedule C or as a partnership with your spouse, there are also no federal payroll taxes for the wages to your under 18 kids. You child is also free from federal payroll taxes.

However, if you are running a corporation, both the business and your child will be subject to payroll taxes. While it may not eliminate all the tax exemptions, the obligations will reduce.

Secondly, your child can reduce tax obligations by a significant amount; the entitled income taxes can be reduced to $12,000. It is the most beneficial tax reform.

Thirdly, children under age of 18 working in family business have a limit of $5,500 in the following scenarios:

A tax-deductible IRA, is linked to federal taxation. If your child earns beyond $12,000 from the business under W-2, this is the most suitable strategy for your child to get more free tax.

A Roth IRA is not subject tax. However, a child can remove any linked contributions including penalty fee and tax. Also, after the age of 59, you are entitled to tax free earnings. This is the best technique to use if your child is earning less than $12,000 as part of salaries. In this case, children do not need tax deduction.

  1. Get Divorced after December 31

If you are planning to get married in 2019, you should reconsider your dates and go for December 31st. According to the marriage rule, you will be considered married for the whole of 2018.

If alimony is not in your plan, consider waiting for the following year to process your divorce. Legislators are working tirelessly to merge existing differences between single taxpayers and the married. While it is a matter concern, the merge will still work to your advantage in future.


Tax treatments of alimony related payments under divorce and separate maintenance agreements were changed after December 31 by the Tax Cuts and Jobs Act (TCJA).

As per old legislations, the payor would deduct alimony payments and the recipient would include payments in income.

The new rules that apply that apply to agreements implemented after December 31, 2018, the payor receives no tax deduction and the recipient does not recognize income.

Also, if you are married on December 31, don’t file in April. It should be a separate filing. If you do, you will overpay taxes.

  1. Stay single to Increase Mortgage deductions

Two people attract less mortgage deductions as compared to a single person. In fact, when comparing two singles and a couple, there is still significant differences in mortgage interest rates.

If you bought a home on or before December 15, 2017 and your partner is not a spouse, you are entitled to mortgage deduction interests of up to $1 million.

If you live together with an unmarried partner with whom you own the house together, each of you has a limit of $2 million on mortgage interest. If you marry each other, the rate drops to $1 million.

If you bought the house after December 15, 2017, the maximum mortgage limits reduces to $1.5 million.


  1. Get married on or before December 31

Keep in mind that getting married on December 31 means you are married the entire year.

There are lots of benefits including IRS savings If you get married on December 31. Consider this date instead of going to 2019.

To be sure with your decision, you might want to take several trips to the court to be sure you are not paying any extra amount unnecessarily. You should be familiar with the costs and tax benefits of your specific case. Scenarios are unique and the policies may be different with your case.

  1. Make use of the 0% tax bracket

The tax policy may have been a wise technique a few years back, but it no longer works today. Today, the kid tax extends to the age of 24. Therefore, you might want to reconsider your options as a college student.

If you give out your money to parents or loved ones, you should check whether they fall in the capital gains tax bracket.

The 0% policy only applies to people with less than $37,650 taxable income and a couple with less than $75,300

P.S. If you would like a roseville tax preparation company to look over your tax strategy, reach out to Tax Shark in Roseville, California.

Posted in Tax