As a parent, I’m always looking for ways to teach my children life long lessons about money. One of the best teaching tools I have found is money! What I really like about money as a teaching tool is not only its effectiveness in teaching my children, but also its effectiveness in reducing my taxes!

In a recent article, I asked you to think about this question:

What Tasks Can Your Children Do For Your Business?

What tasks did you come up with? Here are some of the more common tasks:

- Filing
- Cleaning
- Answering phones
- Running errands
- Data entry
- Maintaining the company’s online presence
- Updating the company website
- Research

As you can see from this short list, the tasks can range from simple to complex depending on your child’s skill set. The more advanced your child’s skill set, the more your child can earn – keep reading to find out why this is a good thing!

- How To Legally Reduce Your Taxes By Hiring Your Children -

When your company pays your children, this is money that your company would usually:

Distribute or pay to you, or
Pay to another employee to do the tasks

If the money is distributed or paid to you, it is taxed at your individual tax rate. If the money is paid to another employee, then that money is leaving your family circle and can no longer work for you and your family.

Having your company hire your children keeps the money in your family and moves the income from your tax rate to your children’s tax rates.

Your children’s tax rates start at 0%. This means if you are in a 30% tax rate, then paying your children shifts income from your 30% tax rate to your children’s 0% tax rate and you reduce your taxes!

- Your Children’s Tax Rates -

The first $5,450 of earned income to each child is taxed at 0%. What happens if your children earn more than this amount? You may still save taxes because your children also have 10% and 15% tax brackets. This provides great opportunity to shift your income to a lower tax bracket!

What about payroll taxes?

Your business and your child may be responsible for payroll taxes, which total approximately 15%. Don’t forget to factor this in when you are calculating how much you save in taxes by hiring your children.

However, there are exceptions to this rule. These exceptions exempt some businesses from having to pay payroll taxes on wages paid to children of the owners. The rules are very specific to each situation so be sure to discuss this with your tax coach.

Getting your children in the game and on your payroll provides many opportunities to reduce your taxes. Even more exciting is what your children can do with this money to put their money to work.

Tom Wheelwright is not only the founder and CEO of Provision, but he is the creative force behind Provision Wealth Strategists. In addition to his management responsibilities, Tom likes to coach clients on wealth, business, and tax strategies. Along with his frequent seminars on these strategies, Tom is an adjunct professor in the Masters of Tax program at Arizona State University. For more information please visit http://www.provisionwealth.com

Article Source: http://EzineArticles.com/?expert=Thomas_Wheelwright

There are many ways your children can put their money to work. Here are two of those ways:

#1 Have Your Children Pay for Their Extras

One thing most parents agree on is that children can be expensive! All the extras add up – sports, lessons, toys, games, the latest gadgets. All parents know this list can go on and on. Rather than paying for your children’s extras with your after-tax dollars, have your children pay for their extras with their after-tax dollars. Your children’s after-tax dollars are much cheaper than yours – especially if they are in a 0% tax rate!

What I love about this strategy is it reduces my taxes AND gives my children real life experience with managing their own finances.

#2 Have Your Children Fund a Roth IRA

Typically children do not have IRAs because in order to make a contribution to an IRA, the IRA owner must have earned income. Since most children do not have earned income, an IRA is not an option.

When you have your business hire your children, not only do you have the opportunity to reduce your taxes, but you have also created the opportunity for your children to contribute to an IRA. Once your children have earned income, they are eligible to contribute to an IRA.

In most cases, I find that a Roth IRA is a better fit for children than a traditional IRA. One reason is because distributions from a Roth IRA are tax-free. In a traditional IRA, distributions are taxable income. This means that all the income earned in a Roth IRA will never be taxed! Of course, the rules of the Roth IRA must be followed to receive this treatment but I find that most of the time, the rules of the Roth IRA are easier to follow than those of a traditional IRA.

The power of time is huge in this strategy because even modest contributions to a Roth IRA at a young age can grow to a substantial balance by the time your children are even just middle aged! Add to that the tax-free nature of the Roth IRA and it’s easy to understand why this strategy can be so powerful for your children.

Another reason I like the Roth IRA for children is that there are several exceptions to the early withdrawal penalty (which can make Roth IRA earnings and contributions taxable). These exceptions provide opportunity for your children to take distributions without penalty long before they reach retirement age.

Tom Wheelwright is not only the founder and CEO of Provision, but he is the creative force behind Provision Wealth Strategists. In addition to his management responsibilities, Tom likes to coach clients on wealth, business, and tax strategies. Along with his frequent seminars on these strategies, Tom is an adjunct professor in the Masters of Tax program at Arizona State University. For more information, visit http://www.provisionwealth.com

Article Source: http://EzineArticles.com/?expert=Thomas_Wheelwright