Have you considered putting your children to work in your business? Of course there's the usual chores, which are very important. But if you can put your children to work part time in your business, there will also be a nice financial payoff.
For instance, you can put your daughter on the payroll for 10 hours during the week, and six more hours on the weekend, serving as a messenger, assisting with incoming phone calls, and doing some landscaping. If you pay her $7 an hour, she will earn $112 a week, or $5,600 a year; assuming a two-week unpaid vacation. The advantage is the salary will be deductible by your business, in effect eliminating $5,600 of income from taxation. In addition, you don't lose the exemption for that child if you continue to supply over half of her support. (And we are assuming that the child has no unearned investment income.)
If your child can be claimed as a dependent, no tax will be due on income under $3,600 (the standard deduction for a dependent child). If your child cannot be claimed as a dependent, the $5,900 personal exemption will apply.
It is important to check your specific situation with your business accountant, but in general the child can be claimed as a dependent if under 19, or under 24 and a student. For 1992, any income over the $3,600 or $5,900 and up to $21,500 would be taxable to your child at approximately 15%, after which the rate climbs gradually. Figures may be different for the current year, because rates could change during the year, but at these low brackets the actual figures will not vary by much, and the principle remains the same. Both employer and employee are liable for Social Security and state unemployment taxes on the income, under any circumstances.
If your child's income exceeds the tax free amount, consider setting up an individual retirement account (IRA). He or she would be able to contribute to the IRA and deduct the lesser of $2,000 or the amount of compensation. By using an IRA, you could have up to $5,600 or $7,900 of income ($3,600 or $5,900 exempt and $2,000 in an IRA) without any tax.
The child, though, must have real work to do kwikmed -- she kwikmed must perform sufficient duties to earn that salary. Otherwise, the IRS will treat the salary as income to you and a gift by you to the child.
Check with your attorney or state department of labor concerning child-labor laws. Commonly there is an exemption for children employed in a business owned by the parents if the children's work is not hazardous.
None of this is affected by whether or not you are eligible to take a home office deduction; it is a matter of whether the child is actually working for the business.
Warning: Building up asset's and income in the child's name (especially in the last two year's of high school) can sharply reduce eligibility for college financial aid.
Many people are under the mistaken impression that debts to the Internal Revenue Service cannot be discharged through bankruptcy. This was true before 1966, but in that year the law changed and Congress enabled unfortunate taxpayers to rid themselves forever of unpayable debt and thus get a new financial start in life.
In order to use this law, certain rules must be followed very carefully:
An income tax return must be filed.
The return must be filed at least three years before the bankruptcy petition is filed.
At least two years must pass before this petition is filed if the tax return was filed late. The three-year rule cannot be shortened to two years by filing the return one day late. The taxpayer must comply with both the three- and two-year rules.
The taxpayer must wait 240 days from the date the taxes are assessed before filing for bankruptcy; these 240 days allow the IRS time to try to collect any taxes it says are due.
Fraud must not be involved.
Even if no returns have been filed, there is still a solution through bankruptcy, for tax debts can be discharged under Chapter 13 even when no return is filed, the return is filed late, or even if fraud is involved, so long as the debtor acts in good faith in making the bankruptcy petition. Chapter 13 is the "wage-earner" plan, which allows installment payments to be made for 3 years, after which all remaining debts are discharged.
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