As business owners, we are uniquely positioned to build wealth that is non-taxable, for those we care about by incorporating them into our existing businesses.
In this article, we will discuss how to build wealth tax-free and help our children and parents.
Before we go into specific strategies to implement when employing your children, one number that we want to put in your head at the very start of this is that the standard deduction for all single taxpayers (which children are) is now $12,950.
Some strategies to employ when thinking about different jobs to give to minors or your children is that the job has to be proportionate to their capabilities, meaning that you’re not going to hire a five-year-old to stock shelves.
But what you could do is if your business does much marketing, you could potentially use your child’s image with both parents’ consent. Then that child is effectively being a model for the company and can earn money that way while being within their physical and mental capabilities.
Down the line, as children get a bit older, entering their teenage years and young adulthood, you can start giving them more complicated jobs depending on the type of business you run.
Whether they file papers, make copies, or stock shelves in a physical store, as minors age and develop, their capabilities also change, which means more opportunities for them to make money and work.
When thinking of ways to generate tax-free wealth for your children, you have the chance as a business owner to employ your children to once again create some tax-free wealth for them.
Another strategy we recommend considering is making a few changes in the child’s account of their life and starting with getting them a 529 account which can grow tax-free and be used to pay for private elementary or high schools, colleges, or trade schools.
Another thing is that children can own IRAs if they do have earned income. One final strategy we can implement is that children can hold their life insurance policies, which can grow tax-free cash value.
What’s good for the goose is good for the gander! For you, the business owner, whole life insurance plans allow individuals to build wealth tax-free that can be borrowed from, tax-free, in the future.
Also, when available as an option, rental real estate investments can help build wealth tax-free when the depreciation of those assets is appropriately planned. Lastly, investing in tax-deferred retirement plans allows us to make tax-deferred wealth.
When it comes to helping older family members, a few things to consider before implementing a plan. Numbers to keep in mind is that a person at complete retirement age can earn up to $1,630 per month or $19,560 per year as of 2022 without having their Social Security (SSI) benefit lowered.
And again, the standard deduction for a single person is still $12,950 now and $25,900 for married taxpayers.
If we are already assisting our parents financially, why not get a tax deduction for it and get them some tax-free income and you a tax deduction?
When trying to help generate tax-free income for your parents, you must keep the tax requirements in mind because the possibility for success exists.
Those of us with parents not in need of financial assistance may also want to contact their financial advisor about rebalancing investment portfolios into tax-free bonds, which can be another great avenue to explore for those seeking tax-free retirement wealth.
It may also be time to sit with an estate planning attorney to set up a trust or family limited partnership so that estate taxes are not an issue in the future. Some states have inheritance taxes that need to be addressed, and a great estate planning attorney can work with you to avoid those pitfalls.
Either way, the limit of tax-free income that can be collected can be affected by the business owners’ parents’ age.
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As we advance, each business and each person’s life will have a different set of circumstances that will define what strategies we here at interactive accountants would recommend.
So keeping that in mind, we want to encourage you to reach out to us and tell us your scenario, and together we can develop some practical strategies based on what was discussed in this article.
We have many more ideas and services to help you and your business thrive. Here at Interactive Accountants, assisting businesses to grow and succeed financially, and compliantly, is our number one goal.
If you’re still not convinced yet to give us a call, feel free to look at our other blogs, or check out our podcast The Interactive Entrepreneur on Spotify where we focus on law firms, healthcare professionals, ecommerce and Amazon DSP’s. So give us a call or schedule a free consultation here with our owner Matthew Shiebler, CPA. He’s been practicing accounting for over 25 years and is a business owner, just like you!