Is There a Way to Pay My Kids Even More Than the $12,000 and Have it Remain Tax Free to Them?
Yes, if you pay your child from an unincorporated business, they can contribute to an IRA or a 401K.
Since your child would have earned income, they would be entitled to contribution to an IRA. The current (2019) maximum contribution to an IRA for someone under 50 is $5,000, so if they contribute to an IRA and file a return, they could be paid an additional $5,000.
Since your child would have earned income, they would be entitled to contribution to Solo 401K. The current (2019) maximum contribution to a Solo 401K for someone under 50 is $19,000, so if they contribute to an IRA and file a return, they could be paid an additional $19,000.
Wait it gets better, the employer can match with a Solo 401K.
Employer nonelective contributions up to:
- 25% of compensation as defined by the plan, or
- cannot exceed $56,000 for 2019).
Now to pull this off, they have to receive a W-2 but the payroll taxes are still exempt.