Hiring family members can lower taxes while allowing the small business to benefit more than just one member of the family. Instead of living vicariously through the small business owner, more than one family member can potentially be involved in the small business in some way. This can range from having your spouse handle the accounting and bookkeeping, to having your children work part-time after school. Hiring the spouse or children is completely fine with the IRS and this can contribute to the businesses bottom line as well as your family’s financial stability. This is a benefit that small businesses enjoy that larger corporations cannot. With larger corporations, this type of hiring is branded as nepotism and is highly frowned upon. The small business can enjoy the benefits of utilizing skilled and unskilled family members; getting help from family members can be beneficial, less expensive, and can help the family unity as well when family members help alleviate the additional time requirements and higher frustrations levels of starting a new business. Family members would be more willing to work odd hours, take up slack, and best of all, be your personal cheerleader.
Children can benefit psychologically; in the past, they often apprenticed with their parents, learning a good work ethic and also learning the intricacies involved in having and holding a job — often what you learn in an apprenticeship is entirely different from what you learn in school. Children can learn from both parents about responsibility, accountability, and commitments. But family workers should never be considered “free labor.” If the work you have for your spouse or children is necessary, pay them a fair wage for their work; never exploit a family member and recognize them as valuable employees. If they are unable to complete necessary tasks have a contingency plan in place and plan how you will deal with the situation.
It’s important to understand how hiring family members will affect the family dynamic and the interactions and relations between family members. When you work together you see your family members 24 hours a day; there are no breaks. Understand how this might affect your home life. Sit down together and plan conflict resolution and exit strategies with all family member employees.
You can benefit on your tax bill when you hire family members, if you follow the rules. Informality is fine, but it is a bad idea to mix too much informality with your business practices, even where family members are concerned. Keep careful documentation of your family’s incomes, so that it is clear that you are not using family member positions for fraudulent activities. The idea is to be as up front with the IRS as possible and to this regard, make your records clear and precise. The best bet is to make the entire employment process of your family members, from start to finish, as similar to the experience of non-family employees as possible. Treat all employees equally.
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