Hooks CPA

Tuesday Tax Tip: Keep it in the Family—The Power of Income Shifting 👨‍👩‍👧‍👦

One of the most effective ways to lower your household’s total tax bill is a strategy called Income Shifting.
By moving a portion of your business income to family members in lower tax brackets, you can significantly reduce the amount of "high-tax" dollars your family pays to the IRS.

The Strategy: Hiring Your Children
If you have children who can perform legitimate work for your business—whether it’s cleaning the office, assisting with social media, or data entry—you can pay them a reasonable wage.

Why this is a "win-win":
* In 2026, the standard deduction for a single filer is $16,100. This means your child can earn up to this amount tax-free at the federal level.
* Business Deduction: Your business gets a tax deduction for the wages paid, effectively shifting that income from your high tax bracket to your child’s 0% bracket.
* Payroll Tax Perks: If your business is a sole proprietorship or a partnership owned only by parents, wages paid to your children under age 18 are typically exempt from Social Security and Medicare taxes.

💡 Pro-Tips for Compliance:
* Legitimate Work: The tasks must be age-appropriate and necessary for the business.
* Market Rate: You must pay them what you would pay a third party for the same work. No "$500/hour" for taking out the trash!
* Paper Trail: Treat them like any other employee. Keep timesheets, have a clear job description, and pay them by business check or direct deposit.

* Roth IRA Opportunity: Since this is "earned income," your child can also contribute to a Roth IRA. Starting a retirement fund for a teenager can lead to massive tax-free growth over their lifetime.

It’s the weekend! Time to accrue some memories and liquidate some stress. ☕️☀️
Whether you’re reconciling your sleep schedule or just auditing the local coffee shop, we hope your Saturday is 100% tax-exempt fun.

https://thehill.com/homenews/house/5313198-house-passes-trump-big-beautiful-bill/

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