Cheat sheet for what’s happening in Kenya
1. Kenya is owning billions
2. Kenya decides to raise taxes to cover debt
3. Protesters who are taxpayers say No. The protesters tell their government to “cut spending instead of raising taxes.”
4. Government and taxpayers disagree
5. Taxpayers protest
6. Their government kills them for protesting
NYC Mayor Eric Adams is planning to give up to $10k to every illegal.
Meanwhile these are the streets of NYC.
Our veterans are starving.
Americans are suffering.
America last: The Democrat way.
The US government's case seeks to make an example of Julian Assange and fire a warning shot to all investigative journalists courageously working to reveal truth and bring about justice.
Statement on Julian Assange: https://t.co/axpAqt2H9M
The story of a small business owner who wrote off:
$16,750
Against their business income by paying their kids.
Got audited, taken to Tax Court, and lost.
Here’s the story:
We’ve all seen the influencer videos encouraging business owners to write off payments to their kids.
“You can pay each kid up to $13,850 per year tax free!”
But it’s not as easy as it sounds…
Here’s how it works:
1. Have a real business
2. Make real money
3. Hire kids for age-appropriate tasks
4. Pay a reasonable wage for these tasks
5. Formalize the employer/employee relationship like you would with any other employee
6. Adhere to employment tax laws and the requirement to file informational returns
People always mess up steps 3-6.
I’ve seen people claim their 7 year old is playing a material role in managing the parent’s rental portfolio.
Or that it makes sense their 10 year old should be earning $100 per hour.
Really?
What mind palace are they visiting each morning?
I want an invite.
But even if you nail steps 3 and 4 and fail to follow-through on steps 5 and 6, you still lose.
That brings me back to our doomed SMB owner, Christine.
Christine ran a seamstress business.
Her son, who was older than 18 at the time (important for Step 6), received $4,000 of wages from this business.
Unfortunately, the business failed to pay employment taxes on the $4,000.
She also failed to file a W-2 for the payments to her son.
Interestingly, the $4,000 was paid in a lump sum before the son ever started working… as an “advance.”
How many business owners would do that in reality?
The Tax Court zeroed in on this advance citing that there was a lack of correlation between payments made and services performed.
On top of that, the Tax Court noted there was poor evidence of the hours actually worked by the son and that the son was performing family chores, such as cleaning the sewing room, moving boxes downstairs, and taking out trash.
Understandably, the Court disallowed the $4,000 payment.
But they weren’t done.
Christine also ran a dog breeding business.
And paid her two daughters $4,250 each in wages.
Her two daughters were younger than 18, so employment taxes didn’t need to be paid.
But the business was still required to file a W2 and failed to do so.
Additionally, the Court found it difficult to believe each daughter could earn exactly $4,250 and also receive that as a lump sum payment at the beginning of the year.
And again, the Court found most of the tasks to be family chores, such as walking dogs, cutting the grass, and cleaning windows.
Personally, I’m all for paying your kids to do real work in your business.
Get them exposed at an early age to work, money, and financial management.
But…
If you are going to deduct the payments against your business income and call your kids “employees” then you must follow stringent rules.
It’s not too difficult.
But most people make the mistake of inflating age-appropriate capabilities and fair wages for tasks performed in order to maximize their tax write off.
And they shoot themselves in the foot when they fail to file required employment forms.
Cross your t’s and dot your i’s.
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