Hiring relatives can offer potential financial advantages for both the business and the family members employed. For instance, wages paid to children under a certain age working for their parents in a sole proprietorship or partnership are often exempt from Federal Unemployment Tax Act (FUTA) tax. Additionally, a business may be able to deduct wages paid to family members as a business expense, reducing its taxable income. Conversely, family members may find themselves in a lower tax bracket, resulting in a smaller portion of their income going towards taxes.
Strategically managing a family workforce can contribute to long-term wealth building and succession planning. Historically, family businesses have played a significant role in economic growth. Understanding applicable tax regulations is critical for optimizing the financial benefits and ensuring compliance. These regulations often change, and staying informed is paramount for ongoing success.
