Here’s a question I received from one of my clients: “I will hire my 15-year-old daughter to work in my single-member LLC business, and I expect to pay her about $12,000 this year. Do I pay her through payroll checks and file a W-2?”
My Answer
Yes. And W-2 payment is essential. If you pay her on a 1099, she will pay self-employment taxes.
When you pay her on a W-2, neither you nor your daughter pays any Social Security or Medicare taxes, and in most states, you also don’t pay any unemployment taxes.
Key point 1. Your single-member LLC is a “disregarded entity” for federal tax purposes. It’s taxed as a sole proprietorship (unless you elect corporate treatment). In this instance, you are the child’s parent, enabling “no Social Security or Medicare taxes” for both your child and your proprietorship.
Key point 2. Your daughter has a $12,950 standard deduction. This means she also pays zero tax on earned income up to that amount.
Wealthy entrepreneurs don't stick their heads in the sand when it comes tax strategy and financial planning.
Rather, they achieve and maintain their wealth by understanding and actively managing their money. Wealth Savvy Entrepreneurs are MORE involved in their tax and financial strategies than Financially Frustrated Business Owners, who often prefer to delegate everything to their accountant so they don't have to think about it.
We help Wealthy and Future-Wealthy Entrepreneurs map out their objectives, identify and avoid obstacles, and understand their levers of financial control so they can lower their taxes and build long-term wealth.
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