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How to get a college tax deduction paying your children

Pay for college and get a tax deductionTax Return

Learn a great tax deduction strategy.  Helping your children pay for college is one of those benefits of being a parent.  Helping them pay for college and getting a tax deduction is a benefit of being a business owner.  This post applies to your college age children over 18.  When you hire a child who is under 18 for your proprietorship, they are exempt from payroll taxes.  However, that is not the case for children over 18.  Here is how you get the college tax deduction.

Hire the child for odd jobs

Summer is a great time for children to earn some money for college.  You will likely have odd jobs around your Home Office during the summer months.  Things your children can do include

  • prepare mass mailings
  • distribute fliers
  • make home office repairs
  • Update social media campaigns
  • Work on your website
  • research blog posts

Contract labor rather than W-2 employee

If you hire your child as a W-2 employee, you will have to pay employment payroll tax.  You will not pay these taxes if you hire the child as contract labor.  You ask, “Does this make my child subject to self-employment taxes?”  No

The Supreme Court ruled that self-employment trade or business meant the job needs to be have continuity and regularity.  The contract jobs described above are not regular.  They are certainly not meet continuity.  They are not part of a trade or business.  There is no expectation that your child will start a business performing occasional tasks like those described above.  They are one-off tasks.  Such activity ends with the summer.

Because your child is not in a business, you provide all of the materials.  They provide the labor.  They should not have business expenses to claim.  

Making the college tax deductions work

You pay your child $10,000 for the summer.  There are no payroll deductions.  It is a business expense to you and you deduct the $10,000.  In the 30% tax bracket, you save $3,000 in federal taxes.  The child will pay 6% or $600 in taxes.  The net savings for the family is $2,400 and the added bonus of the child learning to earn money.

DISCLAIMER

This article is for training purposes only.  Jody Wall does not warranty the accuracy of the training.  It is not intended to be legal or accounting advice.  Seek competent consultation for your particular situation. Readers assume all responsibility for their decisions.

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