John Bullis: Employing the young now helps them down the road
It is OK to hire young workers. It helps them learn what it is like to be an employee. They can learn about customer service. Their earnings might be partially saved and invested, and they can enjoy buying things they really want.
The wages paid to them are a business expense to you. If you are a sole-owner business (you file Schedule C of form 1040), you can save some payroll taxes (but you still pay workers compensation insurance on the wages to the young employee).
They can earn up to $6,100 in 2013 and pay no income tax while remaining a dependent on the parents’ returns. That $6,100 is the standard deduction they can claim on their own income tax return.
Several years ago now, there was a book about the value of working before graduating from high school and/or college. Those who worked while going to school did much better later in life than those who did not work until after graduation. You can understand that from your own experience. Working even part time gives a special understanding of how a business runs, but it mainly gives the worker real-life experience of how to be a good employee.
We recently had some hand railing installed at our home to help older folks handle the steps. The local company had a young man do the job by himself. He did exceptionally well. There was a small misunderstanding about how high the railing was desired. He did the work in a cheerful and workmanlike manner. He learned a bit more about the work, and we are very pleased and appreciative of his work.
That young man will go a long way. He has the personality to be a success in whatever he does.
That local business (a corporation) does pay payroll taxes, etc., on his wages. But it is building a possible future owner and serving customers well at the same time.
Especially sole-owner businesses can benefit from employing young workers. The wages paid reduce the sole-owner profits. That saves income tax and self-employment tax for the owner. It basically moves income from being taxed at the owner’s tax rates to the young worker’s return (no or low income tax). That is a saving for the family.
It is important to document what is done, how long it took, the wages paid and why the wages are “arm’s length,” or what would be paid to others for the same work.
The most common mistake we see is that many owners pay less than is appropriate to young workers who are relatives (i.e. children). That just encourages to young ones to not work in the family business. It’s better to pay them full fair market value.
Did you hear? “The direction in which education starts a man will determine his future in life.” — Plato
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.