Thinking About Hiring Your Children In Your Dental Practice?

Dec 04, 2014

Employing_ChildGenerally they will be in a lower tax bracket than you. Therefore, you can shift income from your higher tax bracket to your children’s lower tax rates.

In order to qualify as a deductible business expense, there are four criteria that must be met.

  1. The compensation must be shown as an ordinary and necessary expense connected with the practice.
  2. The pay must be reasonable, defined as the amount normally paid for similar services.
  3. The services must actually be provided.
  4. The compensation must be paid.

Your child is eligible to contribute up to $5,000 to an individual retirement account (IRA). Thus, in 2014, your child can earn $11,200 without paying any Federal income tax if they contribute the full $5,000 to an IRA.

They could also decide to contribute up to $5,000 to a Roth IRA. They would then pay about $500 of federal income tax, but all the qualified distributions from the Roth IRA would be then tax-free.

Categories: Healthcare & Dentistry