Hiring and leasing from relatives is one of the few ways left to keep the money in the family and still have a business tax deduction.
Method #1: Employ your Spouse at minimum wage
Minimum wage is easily allowable, you pay social security taxes at the minimum rates and all the money stays in the family.
Method #2: Establish an Employee Benefits Program and deduct 100% of your medical insurance costs Currently, Self Employment Health Insurance Deduction is only partially deductible to the business owner.
As an employer, you can pay for medical insurance to cover your employees and their families.
If your spouse is employed by you and includes you as a dependent, your medical insurance is paid by the business and is 100% deductible.
Medical benefits must be the same for ALL employees or the deduction will not be allowed.
Method #3: Employ your Children from age 7 to age 17
The first $4,150 paid to children is tax free to the child and to the employer because of the standard deduction.
The payment is 100% deductible to the business.
Payment must be comparable for type of duties performed and time sheets and a list of tasks completed should be kept.
Putting part of this ‘allowance’ into a college fund will allow your business to pay for your children’s education.
Method #4: Gift fully-depreciated but useful equipment to your relatives
Then rent it back from them. This continues to give you a deduction for the equipment while you use it, reduces your taxable income, and adds income to your household.
NOTES: Anytime you do business of any type with relatives, make sure you:
- Fully document every transaction, in fact, over-document
- Make every payment by check
- Complete all required IRS forms