Single member LLC hiring spouse and kid as employees

[TaxTimeSK1]

Hi,

I have a small photography business as single member LLC. It's my side job/hobby. I have w2 job. 

My 13yrs old kid helps me with the photoshoots and my wife does photo editing.

Got a couple  of questions 

1. How can I hire both of them with minimal overhead?

2. If I go with TurboTax(TT) for filing, do you have a payroll system I can use?

3. I have a net income of about 10K. Can I pay about 50% of it to both of them as salary?

4. Or is it better to just put that 10K into my 401K so that I don't have any income left to add to my personal taxes?

5. If I go with TT for filing, does this situation come under personal taxes or business? I have a rental property and capital gains as well to report.

6. If I go with TT, how can I get answers to any tax questions middle of the year?

Thanks in advance for the help!

[JamesG1]

If you were to hire your children to work for your business, there are tax and state labor laws to follow.

• Your child's wages may be deducted as a business expense.
• Your child may earn up to the standard deduction for the year without owning income tax.
• You must follow the child labor provisions of your state and the Fair Labor Standards Act.
• You must pay your child a reasonable wage for the work that they perform.

Intuit QuickBooks has a payroll function available for use.

You must pay the child a reasonable wage as well as you need to prove to the IRS that you are operating your business in a legitimate fashion.

You certainly want to investigate the possibilities of pension plans that are available to the self-employed.

A Single member LLC is "treated as an entity disregarded as separate from its owner" by the IRS.  That generally means that you report the income on Schedule C of your personal income tax return.

The Intuit Quickbooks website includes an option for 24/7 expert support and review.  However, you may want to sit down with a tax professional to discuss your plans and see all of the options that are available to you.

[DianeW777]

It depends.  Following is the rules for children who work for parents and spouses who work for the other spouse. 

1. Answered below.
2. TurboTax can help you create your W-2s and 1099s, but there is not a payroll system.
3. You cannot just assign the income to your spouse or child for last year.
4. The 401(k) will be a decision based on your income.
5. My advice would be to use TurboTax Online Premier or TurboTax Desktop. See TurboTax Products All of your types of income can be handled in TurboTax.
6. Answers are available all year around when request help here like you did today.

Family Employees

Employed in the parent’s sole proprietorship or a partnership in which each partner is a parent of the child:

• Payments for the services of a child are subject to income tax withholding regardless of age. (This would requires EIN for W-2 reporting)
• Payments for the services of a child under the age 18 are not subject to social security and Medicare taxes.
• Payments for the services of a child under age 21 are not subject to  FUTA tax.  If the child is 21 years or older, then payments for the services of a child are subject to FUTA taxes.

There are some rules to keep in mind if your are paying your child a wage in your business:

• Your child needs to be performing a useful function to your business. You can't pay your child to do household chores.
• You need to provide your children with W-2s.
• You must maintain documentation to prove the hourly rate paid, the number of hours worked, and the amount earned during each payroll period in the event of an audit by the IRS.
• How do I create W-2s and 1099sfor my employees or contractors using TurboTax?

Married Couples In Business

One spouse employed by another

If your spouse is your employee, not your partner, you must pay Social Security and Medicare taxes for them. The wages for the services of an individual who works for their spouse in a trade or business are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax. For more information, refer to Publication 15, Circular E, Employer Tax Guide.

[LindaS5247]

Hiring family members is a perfectly legal and common for small business owners.

As long as they are doing legitimate work for your business, you can hire your children tax-free and pay each of them up to $14,600 (2024) and they will not be subject to income tax.

But you should check your state's child labor laws and ensure your child meets the age requirements to work and they can complete their job within your state's regulated working hours

You can pay your child with a W-2, and you will not be required to  pay Social Security or Medicare taxes.

You can deduct their wages as a business expense.

Also, you will not have to pay unemployment taxes.

You should keep accurate records of employment such as timesheets and proof of pay.

You can pay family members up to $18,000 for 2024, as that is the gift tax limit.

You would file a schedule C for your business.  This can be done using TurboTax Deluxe or Home & Business.

QuickBooks which is also an Intuit product has a payroll system.

Click here for "The Benefits of Employing Your Children and the Tax Breaks Involved"