Month: October 2024

As we have posted, if a child works for your business then you should pay them as follows:

If under age 18, then pay the child from your Schedule C business (don’t pay them directly from your S Corp)

If age 18, then pay them directly from your S Corp or Schedule C (doesn’t matter which)

If age 19, then pay them from either your S Corp or Schedule C business, but see if you can get very cheap subsidized health insurance for them on healthcare.gov.  If the child earns more than 138% of the federal poverty level, and they are not your dependent, then you can take them off of your family health insurance plan and the child can get their own health insurance.  Since they don’t have much income, their health insurance will likely be better than yours and be almost completely subsidized by the Federal government.  Repeat each year until they graduate college and get a job.

As you likely know, an Indiana taxpayer can take advantage of the provision to get a 20% credit for funding an Indiana 529 plan.  The max credit per tax return is $1,500 on a $7,500 contribution.  If college is going to cost, say, $37,500/year, then you can withdraw that amount from your 529 each year without any consequence.  If you contribute $7,500 to the plan, you save $1,500 in tax.  If you give $7,500 to Grandpa and tell him to put that money in the 529 plan, then Grandpa gets $1,500 off of his Indiana taxes (and then you tell Grandpa to gift you the $1,500 of tax savings).  Repeat across every Indiana-taxpaying family member until you have contributed $3,7500 for the year (so 5 family members times $7,500).  You will receive 5 times $1,500 of tax credits.  We know this is an extreme example, but you get the point.

If you want to start a new business and only have money in your IRA/401K to fund it, then you might be tempted to use a “ROBS” strategy whereby you can use your IRA/401K funds to start the business.  The result of this decision is that your new business is “trapped” in a C Corp inside a 401K “forever”.  This results in the least-efficient form of taxation trapped a vehicle that forever produces income taxed at your highest tax rates for the life of your business.  Please see us before making this decision.  We can show you how to tax-efficiently avoid using this strategy so that you can end up with your business in a more-tax-efficient S Corp where you can take advantage of all of the tax advantages of an S Corporation:  shareholder wage, QBID, PTET, long-term capital gains rates on sale, no double taxation.