One of the reasons why the “rich” keep getting richer is because they continuously build wealth on a multi-generational basis. In other words, they “pass the torch” across multiple generations. They teach their kids how to build wealth early and they can also utilize their kids for tax write-offs far beyond the ones the average person is aware of. Now let’s pause for a second and define what it means to be rich. Being rich does not mean you have a lot of money. Being rich is a state of mind. It’s a mindset of abundance and the ability to live comfortably the life that you truly desire. Now back to the article. As we’re building wealth, we should aim to teach our kids wealth-building principles along with ensuring that we leave a legacy.
Hire Your Children
Remember that the rich pay very little in taxes because of the way their income is structured. When they start a company, they can utilize their kids for tax benefits and you too have access to these same tools. One way to reap these benefits is to hire your kids once they reach a certain age (i.e. age 7) and put them on payroll to pay their daily expenses such as daycare, school, etc. instead of paying these expenses directly with after-tax dollars. They can help with simple tasks such as cleaning your office or more complicated tasks such as managing your social media accounts. Remember that each child should have their own bank account (which you usually have to be added as the parent on the account) and if your child is under the age of 18, you can pay them up to about $12,000 (the standard deduction) without having to file a tax return. This essentially means that up to $12,000 can be paid to your kids tax-free (you heard that right) while you get the tax deduction! How this is legal, I don’t know, but welcome to the tax code.
Once your kids reach 18 and above, they’ll more than likely be required to file a tax return and be issued either a 1099/W-2. Can you imagine paying for your daughter’s prom with pre-tax dollars? Well that’s exactly what you can do when you own a business and have kids. Instead of hiring outside of your family, you can start teaching your children business principals and help them build wealth at an early age while you reap the tax benefits. Sounds like a win-win to me.
In my last article, remember what I said: “Imagine how different your life would be today if your parents opened an IRA for you when you started working in their business and you had the ability to fund your college education off your IRA alone. Now imagine if they also opened a credit card in your name and led you to an 800+ credit score at the age of 18. Lastly, what if they established a college fund for you or showed you how to acquire real estate rental properties? How different would your life be today?”
Well you now have the opportunity to make this happen for your own children. And with the new tax code limiting some of our deductions (especially employees), we must own businesses and put these principles into practice. As always, if you have any questions or comments, please don’t hesitate to reach out. And If you would like to discuss some of these strategies more in depth, let’s set up a time to discuss.
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