Hire your children!
If you read ‘Accounting is easy’ on here then you’ve figured out that the key to keeping your tax down is making sure that as much of the spending you do as possible fits into the business expenses category. If you aren’t getting that, go back and read it again!
I know a man (Jim) with a bus hire company. When he comes home in the evening, his children run out to meet him and spend quality time with Dad helping him clean the busses. And how does Dad reward them? A fiver here, a tenner there, or money into their college fund. It adds up.
Remember the basic formula:
Sales minus Business Expenses = Profit. Profit minus tax = Jim’s money.
Jim pays the kids.
On his 50,000 profit, between PAYE and PRSI and Income Levy Jim’s tax bill is about 30% of his profit.
Right now the fivers and tenners and college donations are coming out of Jim’s after tax money. But why? If the kids weren’t cleaning the busses he would have to employ or subcontract someone to do it.
Instead, if Jim hires his kids, making their wages a valid business expense, he saves about 30% on what he is paying them, by making sure their money is on the before tax side of the formula.
Sales minus Business Expenses (including paying the kids) = Profit. Profit minus tax = Jim’s money.
The kids are already paid.
Of course Jim has to register them as employees, and it’s no good if any of them have other jobs as well because they will have used all their tax credit.
So the moral is to beat the tax man, hire your kids, pay them and make them pay for their own college!
Now if you’ll excuse me I have a child to send up a chimney.