Quite a number of businesses around the world are owned by families. It’s been a long tradition and one which continues up until today. In fact, an estimated two-thirds of all businesses worldwide are made up of family firms, according to the Family Firm Institute (FFI).
Additionally, some 70 to 90 percent of yearly global GDP and 50 to 80 percent of jobs in majority of countries worldwide are created by family businesses as reported by the European Family Businesses in 2012.
In North America, 90 percent of all companies are family owned businesses. However, only 30 percent will be passing them to the next generation. By the third generation, only 12 percent are still viable.
In this kind of situation, an enterprise or company normally employs family members to help in running the business. Some parents encourage their children to pursue business degrees in college in the hope that they will be able to manage their enterprise when they retire. Some children, on the other hand, develop an interest in their family business early on and decide to take up a business course on their own free will.
Benefits of Hiring Your Children
“Parents have a lot to gain when hiring their children to work in their business, even if it’s only temporary such as for the summer break,” according to Samantha Greene, a child abuse attorney. “For one thing, it is legal and an effective tax-saving strategy that not many are aware of today.” she pointed out.
For instance in the U.S., putting minor children, even grandchildren or adult children on the payroll can reduce tax liability. Getting your kids to work for you is also helpful in teaching them some work ethics and budget management skills as well as raise awareness on how they can start their college savings or even their retirement plan.
In terms of taxes, children below 18 years old hired by a parent who is a sole proprietor are not subject to FICA taxes. Also since the salary paid to children lowers the net income of the business, this also lowers the self-employment taxes that parents must pay.
Additionally, the insurance costs and other benefits paid to a family member can be considered as a tax deduction by the business owner or the parent in this situation.
When hiring a child, you also keep tha tax-free income within your family instead of paying it to someone else. Take note that you can claim your child on the tax return as a dependent and thereby take the exemption.
Another benefit of employing family members is the opportunity to teach them the right work ethics. When they are exposed to running a business, children learn the difficulties and rewards at the same time. This, in turn, will help them decide which path to take when they go to college and earn their degree.