Has anyone heard of an LLC being able to pay your ...
# general
b
Has anyone heard of an LLC being able to pay your little kids a salary and then to use that to pay for their needs and even open a 401k for them? Is it legal/legit? Seems like a good way to lower income/tax bracket
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m
This is very common and I help people set this up šŸ™‚ 14 year old helps sweep the chabad house for 6k a year and that money goes into their roth IRA
s
Any links to instructions on how to set this up?
c
I've seen this on social media but it never included instructions on how to do it
m
you just need to pay your kids on the books from your business and then you can contribute their money to a retirement account for them up to their total salary. Nothing special.
b
What are the restrictions on this? Is there a cap how much they can make?
m
IRAs have limits so you can’t put more into the IRA than that.
b
Does it have to be used through an IRA?
s
Is there an age limit?
m
I have never seen someone do this with anything other than an IRA
there is no age limit as long as they are paid on the books. This is why a lot of financial independence people try to get their kids into baby modeling, bc 6k growing for 65 years is a lot even if you only do one year of it
c
Can it be used to pay for schooling?
m
i can help anyone set this up if they have questions
It is a retirement account. The benefits would be negated if you used it for schooling.
b
I heard that there's a cap on it for 13k or so per kid per year it seems
c
@mysterious-tomato-10057 to clarify, can you pay your kids from your business and use that money for schooling?
s
why can’t they pay for their own schooling using the money that you pay them? You jus wouldn’t put it in an IRA
plus1 1
you could probably put it in a 529 though
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m
@straight-nightfall-20143 šŸ‘
t
They need to do some actual work. It can't just be a gift. Once you pay them, I assume that they could do what they want with the money including paying tuition or airplane tickets. I'm guessing Baruch's friends are setting up Roth IRA's to help the kids in the long run.
plus1 1
s
how about ā€œprofessional annoyer of younger siblingā€? šŸ˜„
m
e
There appears to be some kind of conflation here between paying your kid to reduce your business income versus enabling them to make retirement plan contributions. It would make no sense to set this up for the latter if you are already over the Social Security wage base, because then you would be exposing money that otherwise would not be subject to FICA to heavy taxes. Even for the former reason, consider the marginal income tax savings against the marginal employment tax expense and figure out if it’s worth being shady, just make the savings. Most people do not do this.
If you are under the wage base, then I suppose it could make some sense, but would likely draw a ton of IRS scrutiny if you were ever audited
What is more conventional is setting up IRAs for adolescent children who do some summer or other part time work
Completely independent of your business
t
Their marginal social security is 13.2%. If someone's marginal income tax (federal + state) is more than that, this could save some money. This is assuming that you can show that they did some work.
e
12.4%
m
My proposal is not doing anything shady, but only paying them for legitimate work that they do and doing a custodial Roth IRA.
All kosher on the books.
But yeah I can’t figure out what the paying for school idea is… lol agree @eager-smartphone-39564
c
not sure why - I’ve seen it on social media, trying to figure out why it would be done šŸ¤·ā€ā™€ļø
my kid is still too little for any of this
t
12.4% is social security. There's an additional 2.9% for medicare. So, it's 15.3%. I had misremembered the number.
e
Correct but there is no wage base associated with Medicare so either way you are going to have to pay the 2.9% whether it’s you or your kid
t
You're right. I'm not on top of this.
b
e
While I acknowledge that I was not familiar with the payroll tax exemption for sole proprietors, it seems pretty sticky if you are structured in any other way. I would also note that his addition of the IRA contribution to the overall tax deduction number is misleading, given that the contribution represents a deferred tax liability when the account is distributed. Ultimately it comes down to the question of how much work it is going to take to come up with and document reasonable tasks and wages, and how much you are willing to tie up in accounts that must be used for the direct benefit of the child. Admittedly, there is more here than I have ever thought about, but I wouldn’t exactly consider this to be a groundbreaking strategy for your financial future .
f
This only makes sense if you have a business already and they do some work for you ,however to open a bussness just to pay them, will most certainly cause an IRS audit . Second how is said LLC getting income or money to pay them ??
m
I don't think anyone is condoning or suggesting to do this without a preexisting business.