Thinking About Hiring Your Children In Your Dental Practice?
Dec 04, 2014
Generally 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.
- The compensation must be shown as an ordinary and necessary expense connected with the practice.
- The pay must be reasonable, defined as the amount normally paid for similar services.
- The services must actually be provided.
- 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