Aside from taxes, one of our biggest expenses is probably our kids. As they get older, they often get more expensive. From little $5 toys to video games that cost a few hundred dollars.
As they get even older, we may spend money on them for cars, college, and much more. A common question that we get asked all the time is, “How can I write off money that I spend on my kids?”
Well…most CPAs will tell you that you can’t. But that may just be because they are not thinking strategically. You might be able to write off money that you spend on your kids if done correctly. We call this strategy “income shifting.”
What Is Income Shifting?
“Income shifting” means shifting money from one family member to another. This can give you the ability to write off the money you spend on your kids by turning them into legitimate business expenses.
So, rather than you giving them money for the movies or their car, have them help you out in your real estate business and pay them for working for you. This gives you a tax deduction for your real estate business. Then, they can use the money they earned to pay for their movies and car expenses.
What are some of the benefits of income shifting?
There’s a handful that come to mind right away:
Teach the kids good working habits,
Teach them a sense of responsibility,
Reduce your family’s overall taxes, and
Allow them start a tax-free retirement bucket.
Teaching them good working habits and a sense of responsibility by helping you at work probably seems pretty straightforward. But how does this help your family save on taxes?
Little boy and his father are washing the dishes together at home.
The best way to explain it is to go over a real-life example. A few years ago, we met with Melissa near the end of the year to go over some year-end tax planning ideas. Melissa is a full-time sales employee but also has a real estate business flipping properties.
Melissa has two boys in high school. And for those of you with kids in high school, you know that it can get expensive. The boys need money for school, friends, movies, cell phones, and many other things. While we were meeting with Melissa and making small talk about weekend plans and such, she mentioned that she was going to put her sons to work the entire weekend, because she had a ton of cleaning and some fix-up stuff that had to be done on one of her flip properties.
Keep reading the article “How Hiring Your Kids Can Save You Money on Taxes” by Amanda Han here:
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