Hey, Sharon, I had to join you from the Louvre today. Well, good for you being in Paris. You know, it is the language of love. And today, we're gonna be talking about our family and loving our family. You know, I thought how appropriate, right? It is. There you go. This is a big question. You know, you and I have had this question before amongst ourselves. Can and should I employ my family? And so many times we get CRNAs that are asking about this. You know, should I put my spouse on payroll? Should I put my children on payroll? Should I pay them? What are the benefits? How does it work? So we're gonna kind of, again, just take this high level today. We're not gonna get down in the granular details, so you go to sleep. But we are gonna hit the highlights because I think it's very, very important for any CRNA out there who is transitioning to 1099 or in 1099 to understand the benefits and possible drawbacks of this. So that'll be our topic for this module. One of the things that makes this even more interesting is when the tax reform came in 2018, they basically got away from having personal exemptions. Sharon, you remember we used to all think of our kids as a tax write-off, right? Right. And you hoped you would have them by January 31st, if you were- That's right. And you even had more because people considered them a tax write-off. And I was like, no, if you really think about that, that's a hard way to look at it because the average kid costs you 250, $300,000 over their lifetime. You're not gonna save that much in taxes by having them. So it's all about love, Sharon. So it basically removed those personal exemptions until 2026. So a lot of people don't realize this, that in 2018, when the Tax Cut and Jobs Act was passed, they couldn't get it passed forever. So it sunsets December 31st of 2025, which basically means everything's gonna change and revert back to the way it was in 2017. And by the way, every single person's taxes are going to go up because of that as well. So something to look forward to. But for now, that's what kind of changed and made this even a little bit more enticing to do. The other thing that happened is they got rid of the exemptions, but they basically doubled the standard deduction. So the standard deduction in 2017 was 6,350. In 2018, that went to 12,000, but you lost your exemption. And this year, your standard deduction is $14,600. All right, that's in 2024. And that's a big deal because what we're talking about has to do with this and this number because that's how much money you can make and pay zero tax on it, federally taxed. $14,600. $14,600, all right. So that's really the crux of the conversation. How do we utilize this tax law to get us where we wanna go and put us in a better situation? The first question I always get, should I employ my spouse? And the big answer to that is why? What is the purpose of employing your spouse? Sharon, again, you and I have had this conversation. What's the purpose of employing your spouse? Because it's not gonna save you from a tax perspective. All right, it doesn't matter if Sharon gets paid or Pierce gets paid. Y'all are together. You're in the same tax bracket. There's no savings to be had by doing that. Another reason that we wanna know the answer to this is let's say that you're an S corporation and you're taking a salary or payroll. Remember that FICA tax with the S corporation, the lower the salary saves you the FICA tax, the more salary, the more FICA tax you pay. Sharon, if I'm paying you a salary of $120,000 for round numbers and you come in and say, I wanna pay Pierce 50,000. We can do that, but remember when we pay him, we've gotta also pay that FICA tax. Whereas if we didn't pay him, that would save us 15.3% on $50,000 or about $7,500 in taxes. So the question becomes is why do we wanna do this? Now, remember when you pay FICA, it does give you earnings history. So it can help increase your social security later on. So that's maybe one reason to do it, but the big reason to pay a spouse and the one that I see in our practice all the time is to enable them to save in a retirement plan. One, your spouse needs to be a bona fide employee. You can't just pay them to pay them. They need to have a job description. They actually need to be working. They need to be doing something for the business to enable that business to grow and you to continue to do what you do. If you don't have that, the IRS ever looked at that, that's not gonna fly, okay? So, but the big reason to employ your spouse is, hey, I'm gonna pay them $25,000 for doing X, Y, and Z. They're gonna defer $23,000 of that 25 into the 401k plan. And then I'm also gonna give them a profit sharing match of what 25% of what I paid them as their W-2 income. So they get another 6,250. We basically got $29,250 in a retirement plan for them on a tax deductible basis. So this is really the main reason for people to do that. It's really not gonna save you anything from a tax perspective to pay them. And even if we pay them to put it in the retirement plan and you're an S corporation, you do not get around paying that self-employment tax. You still gotta pay that FICA tax on that. If you're sitting out there and you're saying, should I employ my spouse? The first question to ask yourself is, why do I wanna do it? It's not gonna save me tax-wise. There's gotta be another reason for us to want to do this. And I think that that's very important as you move forward in your 1099 planning to understand that. We're gonna switch gears. We're gonna talk about employing your children. And you'll see employing your child can be a smart move because remember, you can make up to $14,600 and there's no federal taxes for kids. They need to, one, be a bona fide employee. Sharon, a one-year-old, a two-year-old, a five-year-old is probably not a bona fide employee, okay? They need that be working in the business, doing something. You need to define what that something is, a job description, track their hours, their salary that you pay them hourly needs to be reasonable. You can't pay them $500 an hour to empty trash cans in your office. So it all needs to be reasonable. You need to document and have the proper documents in order for that. But it can be very, very powerful because not only is that $14,600 a deduction to you and the business, we deduct it, but it's non-taxable to the child. So you're basically getting $14,600 that maybe you're in the 30% tax bracket. So 30% of taxes on 14-6 will be 4380, okay? So you just saved yourself $4,380 by employing your child. It does make sense sometimes to do this in certain instances. Again, make sure you understand the rules and so forth. Let me throw a little caveat at you. It does not work the same for an S corporation as it does a Schedule C or a sole proprietor. If you're just straight Schedule C, you just work 1099, maybe you've got an LLC, okay? You got a single member LLC, it's just Sharon Pierce, but we never got the S election. So it's just passed through on a Schedule C and goes to your individual tax return. That's the scenario we're gonna describe right now because the Schedule C, you do not have to pay the FICA taxes on what we pay the child. You run it as Schedule C, you pay them $12,000 that year for doing whatever. There's no federal tax and there's no FICA taxes on that amount either, and that's a big difference. You also, for wages for children under the age of 21, they're exempt from unemployment taxes as well, okay? So you don't have to pay unemployment taxes. And then like I said, if it's an LLC or sole proprietorship, these perks or benefits apply to you, okay? So this is Schedule C. When we go to an example here, you take a look. If you've got three children and you've paid them all three $12,000, that's $36,000 that you can deduct. Again, back to our 30% tax bracket there, you just save $10,800 on federal taxes. You save 15.3% on FICA, which is basically another 5,400. You just save $16,200 in taxes. The kids don't pay any taxes on it because of the standard deduction. And again, depending on your tax bracket, that's a big tax savings, okay? So this can be a very powerful way, again, to kind of pass money down through the family, but make sure you're doing it right, setting it up right, and doing all the stuff you need to be doing. Corporations and partnerships. So S and C corporations, most of our CRNAs are S corporation taxed. If you're an S corporation, remember we've got several modules on this talking about payroll and FICA taxes. You must pay FICA taxes and you must pay unemployment taxes. So non-spouse partnerships, same thing. And remember, children over age 18 get no tax breaks. So it's children under age 18 that this applies to for corporations and partnerships. Back to our example a minute ago. Schedule C, you pay your child, no federal taxes, no FICA taxes, no unemployment. You're taxed as an S corporation, no federal taxes. You gotta pay the FICA tax and you gotta pay the unemployment taxes. It's not as efficient to pay your children through your S corporation, but it's still efficient. Something to think about in there. So the employer has to pay their fair share of the FICA taxes, 7.65%. The child, the employee, has to pay their 7.65%. And then you also have to pay state and federal unemployment taxes, which vary depending upon where you're at and so forth. That's a big difference between being scheduled C and S. That's not a reason not to be the S. It's just something that you need to know if you're gonna pay your children. So one, I alluded to this a minute ago. One, you're gonna have to pay your payroll taxes, but it still can lead to savings for you and family and the team family. You're transferring income to them from you, but you're still keeping it in the family. And for some of us, they're gonna get it anyway. If we can do it the most tax efficient way, why not? And if you do this for a series of years, I mean, think about that. You start paying your kid at age 13 to 18, you paid them 12 grand a year, you got $60,000 down to them. But effectively, if you're, depending upon what tax brackets you're in, that could be closer to $100,000 in real dollars. So it can be a pretty good amount of money if you set it up properly. So remember the under 18 advantage and remember no matter whether you're S or C, in most cases, there's financial gain for you, for the children and for the family. So everybody wins.

family members

tax benefits

employment roles

retirement savings

standard deduction