Our families often provide us support at home and in business. If you own a small business, chances are its family owned and operated. Just like working with your family comes with its own set of unique challenges, it is the same when filing your taxes. In fact, there are several scenarios that you want to consider when family are employees.
Being an experienced small business accountant in St. Petersburg, we have seen many of these scenarios first-hand. Here are some facts to know when working with a spouse, parent, or child:
- Both spouses carrying on the trade or business? If spouses conduct a business together and share the profits and losses, they may be partners, whether it’s a formal partnership or not. They should not use a schedule C, but should report income or loss on a Form 1065.
- One spouse employed by another? These wages are subject to income tax withholding and social security and Medicare taxes. They are not subject to the Federal Unemployment Tax Act.
- Child employed by parents? If the child is under age 18, they are not subject to social security and Medicare taxes if the business is a sole proprietorship or partnership in which both are parents to the child. Payments to a child under 21 aren’t subject to the Federal Unemployment Tax Act. Payments are subject to income tax withholding no matter the child’s age. Keep in mind that a corporation must pay all of the taxes.
- Parent employed by child? Wages are subject to income tax withholding, social security, and Medicare taxes. They are not subject to Federal Unemployment tax.
We hope you’ve enjoyed these tax tips for small businesses. If you are looking for a small business accountant in St. Petersburg, contact us today for a consultation!