Raising a Financially Literate Child
What You Need to Know to Teach You Kids About Money
By Diane Kennedy
Pay your child age 8 or older an amount less than $600. In this case, you do not even need to report the income paid to the IRS. BENEFIT: Amounts paid under $600 are not reportable to the IRS yet it is a deduction for your business. Make a pension contribution for your child. You can make a pension contribution of up to $6,000 or the amount of wages paid to your child with a simple plan. BENEFIT: You are using before tax money to grow assets for your children. Your child can set up a ROTH IRA account, which allows for tax-free growth. Unlike a pension, there is no "day of tax reckoning" when the money is pulled out. The money is never taxed when it is distributed to you. Pay your child a salary through a Schedule C (Sole Proprietorship) if this makes sense for your overall tax plan. Salary paid to your child in this type of structure is not subject to payroll taxes. Three Tips to Teach Your Child to be Able Investors - Teach your child the power of investing. You are not teaching them to be employees. Rather, use this as an opportunity to teach them how to budget and invest. Reward your child's investments by matching their investment. Your child will learn the cost of a "doodad" (the shiny thing of no useful purpose that seems to draw aduts and children alike) when they make choices based on their own resources.
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