Best way to pay kid's income through her own social media work?

[ToUnderstandTax]

Hi there,

My kid did some work in her social media and she got some income. She got my consent to use my name to get that and use my personal PayPal account to receive those income. That personal PayPal account is associated with my personal checking account and I do not have a business account. 

I'd like to have all of those income paid to her since that is really what she earned although that is only a small amount of money. Let's say it is $800. I am on W2 with an employer and do not have LLC. I have the following questions: 

1. Without an LLC and EIN, can I pay my kid for that amount? If so, do I need to send an 1099-MISC form for that and how could I do that without EIN? 

2. My understanding is that I will need to report the $800 as my income, but if I pay that to my kid, can I deduct that $800 and how could I do that? Do I need to file schedule C for this year's tax return? 

3. Does my kid need to file a schedule C for this income when filing this year's return? Does she need to pay self-employment tax, FICA/etc for that income? 

4. What's the best practice to do such for next year? Is it better if I setup an LLC, get an EIN, and create a business banking account and use that LLC to do business on her behalf and pay the income to her? It seems hiring her as an W2 employee is less reasonable compared to hiring her as independent contractor because the income is not steady and my sole purpose is to let her get what she earned through her work? From tax perspective it looks like W2 employee is better since hired by parent business does not need to deal with FICA/etc and self-employment tax although I will need to do tax withholding for that? 

Thank you very much for your help. 

[Bsch4477]

You may be over thinking this. She earned that income herself and not as your employee. 

You would complete Sch C since the income reflects your tax ID. Report the income and the enter the same amount as an expense as “pass through to….(child’s name aSSN).  That will take care of your not paying tax on the income but satisfying reporting it to the IRS. 

Then file a Sch C for your daughter reporting the income as cash income. Yes, she will pay some self employment tax. The amount is small enough that she doesn’t have to pay estimated tax. Then just give her the $800 as a gift which would have no tax implications. 

[ToUnderstandTax]

Thanks! But is there a way to skip the self employment tax for next year? This amount is small enough so it does not make much difference so I am thinking for the future. 

From a general perspective, is it reasonable to setup an LLC in the future and use that for that business to make it separate from personal matters, and hire her to do that and make her a W2 employee *if* I can make a good guess about the income? In that case she can avoid paying the self employment tax, right? 

But yeah that needs some additional paperwork: register LLC with the state and get an EIN and file something annually? 

[rjs]

You don't need an EIN or an LLC for simple self-employment. Your daughter is just a sole proprietor. Have the money paid directly to her. She will file a tax return with self-employment income on schedule C. If this is her only income, she will pay self-employment tax, but no income tax. Keep yourself out of it. Your daughter's income should not show up on your tax return or affect your tax return at all.

[Critter-3]

From a general perspective, is it reasonable to setup an LLC in the future and use that for that business to make it separate from personal matters, and hire her to do that and make her a W2 employee *if* I can make a good guess about the income? In that case she can avoid paying the self employment tax, right?     RIGHT

But yeah that needs some additional paperwork: register LLC with the state and get an EIN and file something annually?   CORRECT 

[ToUnderstandTax]

Thanks! Unfortunately cannot have the payer pay her directly since PayPal does not allow minor to have an account. So as of now this came to my personal PayPal  account. 

[ToUnderstandTax]

Is it feasible to create an LLC with both my kid and me and have the kid with 99% and me with 1%? In this case it becomes partnership and that just pass through to both of us. But self employment tax becomes inevitable . Any other downside of this? 

[Critter-3]

If you want to set up a partnership and file a partnership return every year until she turns 18 that is also allowed ... this will skip the W-2 situation however all the profits will be subject to FICA taxes this way. 

Going the Sch C route + W-2 will allow you to avoid the FICA taxes on your minor child until she is 18.  

[ToUnderstandTax]

Thanks! Yeah I figured it is inevitable to deal with FICA in this situation. 
so going back the the LLC hire kid as employee case: in that case

 - cna the LLC still pass through income to the LLC member (ie me) when filing tax return? 

 - can LLC deduct the expense paid to the employee (kid) and kid does not need to pay FICA before turns to 17 or 18? Therefore the net effect of my income is 0? 

If both are true, this seems a more reasonable solution?

I am still new to tax. Bear with me for different simple questions:) 

[rjs]

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@ToUnderstandTax wrote:

so going back the the LLC hire kid as employee case: in that case

 - cna the LLC still pass through income to the LLC member (ie me) when filing tax return? 

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If it's a single-member LLC it is disregarded for income tax purposes. The LLC and you are one and the same. So the LLC's income is your income, reported on Schedule C of your personal tax return.

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@ToUnderstandTax wrote:

 - can LLC deduct the expense paid to the employee (kid) and kid does not need to pay FICA before turns to 17 or 18? Therefore the net effect of my income is 0? 

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Yes, the wages paid to your employee would be deducted as a business expense.

It's not clear to me that you need an LLC to do this, since the LLC is disregarded. If you have a Schedule C business as a sole proprietorship you could pay your daughter as an employee. Your tax return would look the same with or without the LLC. @Critter-3 might have a firmer idea of whether an LLC is necessary.

[Critter-3]

An LLC is totally a waste of time ... leave it as a Sch C and pay the daughter wages and file the proper payroll tax forms ... this way you both do not pay FICA taxes on the income. 

[Anonymous_]

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@Critter-3 wrote:

An LLC is totally a waste of time ...

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I agree and an LLC also involves extra expenses, such as state fees to file articles of organization, ongoing annual report fees (in many states), and fees for filing a return (Form 1065) for the LLC if it has more than one member. 

I concur with @Critter-3; go the Schedule C route.

[ToUnderstandTax]

If I do not have an LLC, how could I get an EIN to hire her and put her on payroll? 

I might be wrong but my understanding is that I need a business to get EIN and I need an EIN to have W2 employee and setup business banking account? 

[Anonymous_]

@ToUnderstandTax 

You can apply for an EIN online as a sole proprietor.

See https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-n...

[Critter-3]

You simply get the Sch C an EIN ... no LLC is required ... read the SS-4 again ...