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The Financial Incentive Behind Building a Family Business

Robyn Parets

Robyn Parets

Contributor at Fundera
Robyn Parets is a personal finance and business writer based in Boston. A former writer for Investor's Business Daily and NerdWallet, Robyn is also the founder and owner of Pretzel Kids, a children's fitness brand and online training course. You can follow her on Twitter @RobynParets or reach her via email at robynparets@gmail.com
Robyn Parets

During the summer of 2011, Mark Piantedosi hired his teenage son Michael to work for his landscaping company. It was one of his best business and parenting moves so far.

Piantedosi, owner of Rudy’s Tree & Landscape and Commonwealth Landscape Lighting in Acton, Massachusetts, taught his now 21-year-old son everything about working at his landscaping and lighting design businesses. And Piantedosi learned a thing or two from Michael too, who is now in his senior year of college and planning to report to work at Commonwealth Landscape Lighting the day after he graduates this spring.

“He’s proud of the fact that he already has a job after graduation,” says Piantedosi.

Michael is majoring in communications and will be instrumental in putting the family-run businesses on the digital map. “Social media isn’t my strong suit and electronic communications aren’t my thing. But Michael is showing me how to keep the company current with digital public relations and I’m learning from him. He recently created a Facebook page for our lighting company,” says Piantedosi, adding that he’s looking forward to Michael building Commonwealth’s presence on social media channels.

Teaching Your Kids About the Family Business

Rudy’s Tree & Landscaping was founded by Piantedosi’s father, Rudy, in 1955. When growing up, Piantedosi worked at the business and eventually took it over. He started the new landscape lighting business in 2000, run under the umbrella of Rudy’s Tree & Landscape.

Rudy’s focuses on landscape maintenance, construction, and design for its 50 regular customers—as well as new clients. The company also provides snow plowing and snow removal services in the winter months. During the peak New England landscaping season, from April until December, Rudy’s employs up to eight full-time employees. In the winter the team goes down to about three with additional part-time help during snowstorms. Piantedosi does most of the work himself at Commonwealth Landscape Lighting, which specializes in creating and installing outdoor landscape lighting projects. When Michael is home from college, the father-and-son team spearhead the growing outdoor lighting firm.  

Over the past two summers, Piantedosi took Michael with him on Commonwealth job sites so he could see the company’s potential for growth. “We align ourselves with designers and architects, and the work flows from there. You don’t need bobcats and heavy machinery. Michael saw the potential.”

Michael learned the ins and outs of the lighting business and could blend this knowledge with the hard work ethic that he gained working on lawn maintenance for Rudy’s since he was in high school.

Learning to Work Hard

Piantedosi says he’s passing along the values his father taught him: Treat clients right and be responsible.

“The number 1 lesson Michael learned was responsibility. He had to be someplace at a certain time. He also learned what it takes to work for and run a service company.”

From the time Michael was young, he would hear daily stories about his father’s work. But it wasn’t until he actually started working at Rudy’s that he truly understood what goes into successfully operating a service business. These life and business lessons will be with him no matter what his future holds, says Piantedosi.

But Wait: There Are Tax Perks

Teaching your kids about hard work and customer service is something most parents would love to pass along to their children, right? But what if hiring your child not only solves your problem of staffing up your company—especially during the summer—but also helps your business financially and leaves your teenager with more money to spend and save?

Well, you’re in luck: putting your child on your small company’s payroll can offer you substantial tax breaks. Here’s the rundown on possible tax advantages that might be available to you and your child:

  • Hiring your child under the age of 18 to work for your company is deductible as a business expense—up to $6,300 in wages. This, in turn, lowers your company’s gross income. But that’s not all: your child will pay no taxes on his earnings by claiming the standard deduction on his taxes.
  • If your child is under 18 and employed by your sole proprietorship or partnership, where both partners are the child’s parents, your child won’t be required to pay social security or Medicare taxes, according to the IRS. You also won’t have to withhold payroll taxes. And, if the child is under 21, you won’t have to pay unemployment taxes either. This could equate to significant tax savings on your child’s 2015 wages, says Intuit.
  • Want to claim your child as a dependent on your taxes? You can absolutely do that, and you can even take advantage of the Child Tax Credit.  
  • Your child can earmark up to $5,500 of his yearly earnings—according to the 2015 maximum amount—in after-tax dollars towards a Roth IRA. Funds can be withdrawn tax-free at age 59 ½. This is a great way to encourage your kids to start saving and investing for their future at a young age.  

Make Sure You Do It Right

If you plan to put your kids on your payroll, make sure you do it right—there’s no need to encounter accounting or tax issues down the line.

Here are some tips:

  • Make sure that what you pay your child is reasonable and legitimate for the job description. On that note, only employ your child if he can actually perform the job requirements. Although it may be enticing to take a bigger tax deduction by paying a higher hourly rate, if you’re paying out more than you would pay someone else for the same job, this could raise a red flag with the IRS. Likewise, hiring an eight-year-old to work at a landscaping company doing lawn maintenance work—just to get a tax break—probably won’t fly with the IRS either.
  • Pay your child the same way you pay other employees. In other words: Pay by check or automatic deposit, and not with cash. If you really want to help your child get a jumpstart on future savings, you can even deposit his pay right into a Roth IRA account.
  • Make sure you fill out and file proper tax forms, just like you would for any other employee. This includes filing a Form W-2 to show how much your child was paid.
  • It’s not necessary, but it can be helpful to keep tabs on your child’s hours by having him or her fill out some type of timesheet that includes dates, hours spent at the job daily, and specific tasks performed. You might also want to consider a signed employment agreement with your child outlining job responsibilities and hours. This way, if the IRS or your accountant needs to see more specific records, these will be readily available.

One final piece of advice: Whether you’re considering hiring your child full-time, part-time, or just for summer help, it’s always a good idea to discuss with an accountant. This way you’ll have a better understanding of the specific tax breaks available to your business and your child. You can even do double-duty by discussing Roth IRA options and benefits—your child will thank you down the line.

Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.
Robyn Parets

Robyn Parets

Contributor at Fundera
Robyn Parets is a personal finance and business writer based in Boston. A former writer for Investor's Business Daily and NerdWallet, Robyn is also the founder and owner of Pretzel Kids, a children's fitness brand and online training course. You can follow her on Twitter @RobynParets or reach her via email at robynparets@gmail.com
Robyn Parets

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