This advice applies to US law only.
I’ve discovered a formula that you can use to teach your children about business, selling, marketing, finance, responsibility, and commitment. But you know what’s even better? In the process, they will become millionaires without ever paying a single dollar in taxes! No it isn’t some cockeyed tax protestor scheme. This is absolutely legal and legit.
What is it? It’s a simple formula, and I’ll give to you free.
- Start a small home based business. It doesn’t need to be a big deal. It can be as simple as a website or an eBay based business. Any home based business will do as long as it can generate a moderate amount of cash flow. I would shoot for 10-20K of cash flow in the first year at a minimum. It doesn’t need to be profitable; it only needs to generate enough cash flow to pay a very small payroll.
- Employ your children. You can start as young as is reasonable. There is nothing illegal about employing your children. There is certainly nothing immoral about it. It will be one of the best educational experiences of their young lives and they’ll learn things they’ll never learn in school.
- Create a Roth IRA for each of your children. The payoff will be huge in the long run. I’ll explain later.
Three requirements for employing your children in your home business:
- You need a written job description of their duties and it must be reasonable. Examples: Your 8-year-old could help package and ship products. A 12-year-old could help you write blog posts and do site design. Your 16-year-old could help you transport and purchase product. Your 19-year-old could help with bookkeeping.
- Keep detailed records of the hours they work. The IRS may ask for them and you may need to prove it was legitimate work.
- Pay them a reasonable wage. Paying your 8-year-old $200 an hour for sweeping out the warehouse will get you in trouble, but paying him minimum wage will not. You can pay older children significantly more, but remember the wage you pay them must be a fair market wage.
This formula only works if your child has earned income from your business. It does not apply to unearned income.
· Earned income is money they earn by working for your business.
· Unearned income is money they earn by being part owners of the company.
Make your kids employees not owners.
Now Show Me The Money
You can pay each child up to $4850 per year tax free. If you pay them more, they will be required to declare and pay tax on their income. If you employ three of your children, that’s nearly $15,000 per year completely tax free.
The Big Payoff
We all know how compound interest works, right? The earlier in life you start investing the bigger the payoff. So start as early as you can.
You don’t have to pay taxes on the first $4850 your child earns.
Of the $4850, invest the maximum of $4,000 per year in your child’s Roth IRA so you won’t pay taxes on investment earnings or later withdrawals.
Now, if you employed your child from 8 to 18 years-old, depositing $4,000 annually in her Roth IRA …
Using a Retirement Planning Spreadsheet…
Assuming a 10% return (you could easily beat that)…
Without ever saving another dollar after the age of 17…
Without making another investment… ever…
Without paying $1 in taxes…
She will be a millionaire by age 45…
And worth over six million dollars by age 65!
So what are you waiting for? Get out there and start a damn business already!