Letting your children or spouse borrow money for whatever reason may just be able to help you when doing taxes, if you are self-employed. Don't go the usual route of just handing over money, but record the money as a business transaction as money paid for a job well done and you might just have saved yourself some money in taxes.

Why is this? Once it's provided as payment for a service provided to the business or as a wage, it lowers the income tax and Social Security/Medicare taxes owed by the business.

However, remember, there is much more to it than just handing over some money and saying it is for the purpose of payment. You do still have to fill out all of the necessary payroll forms in order to bring on the family member as an employee.

Everything else must be kept on the up and up also. For example the wages need to be fair, both to the employee and the other employees, make sure the relative is getting paid what is reasonable for the task they are performing. Make sure to also keep careful track of hours and what duties were performed as with any other employee. Of course, the money must actually be paid to the relative and no one else.

Another benefit can be gained by hiring your children to be employed in your business, especially if they are under the age of eighteen. The most benefits come to those living in Ohio, where if the child makes less than $3500 a year, they are not only exempt from Federal income taxes or state income taxes.

Many Ohio cities also allow children under eighteen to be exempt from city taxes. One more benefit to hiring your children in Ohio is the absence of Ohio Bureau of Employment Services taxes. However, what about those outside of Ohio you ask? Well, they can enjoy benefits of hiring their children as well.

Any state allows those who are under age eighteen to be exempt from Social Security/Medicare taxes being withheld from their checks. In addition, if they are under age eighteen and make less than $3800 a year there is no need for federal income taxes being deducted from their wages.

Business owners themselves can benefit immensely from hiring children under eighteen as well. For one there are no Social Security/Medicare taxes that the business is responsible for paying for that employee. In addition, up to the age of 21 there is no Federal Unemployment tax that the business has to pay for.

As far as hiring a spouse you would still have to pay Social Security/Medicare taxes and all other taxes apply but can be an advantage based on the couples income tax return form and how it is submitted. However, two of the above advantages in hiring a child still apply in this situation. One, there will be no Federal Unemployment taxes and two, if living in Ohio, there will be no Ohio Bureau of Employment Services taxes.

There are some very clear and greater benefits to hiring your spouse if you know about them. Once again, in Ohio a couple can earn a tax credit on their Ohio state tax return for joint filing, if the new wage is the only source of earned income and it is at least $500.00. For those in other states they can earn child care credits on their Federal tax return if one spouse hires another. Sometimes it also allows a husband or wife to be eligible for a bigger IRA.

One really great example of a benefit enjoyed by hiring a spouse is the fact that a health insurance plan can be offered to them that is 100% deductible as a business expense.

Of course you must be fair and offer this benefit to other employees if applicable. Once again in this situation medical reimbursement plans can be offered and can be up to 100% deductible as a business expense. Also once again this must be available to other employees unless eligibility excludes them.

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