0:00:00
Hey everybody, it’s time to talk about finances, it’s time to talk about taxes, it’s time to talk about paying your kids, it’s time to talk about generational wealth. But before we really get into this, I need to make the obvious disclaimer that I am NOT a CPA and I am NOT a tax attorney. What I’m about to share with you in this video is a strategy that I implement personally in my business and with my kids at the advice and oversight of multiple CPAs and multiple tax attorneys that I’ve consulted with over the years and that I’ve learned from over the years. But this is not advice. I am not asking you or telling you or advising you to implement this in your business. If this is something that you are interested in, you need to consult your own tax attorney and then you need to implement it according to the way that they outline it.
0:00:55
Okay? So with that said, we’re going to go ahead and we’re going to get right into it. Let’s talk first about the concept of paying your kids. There’s going to be people watching this video who are not in the United States and thus they’re maybe not able to take advantage of what I’m about to share and the process that I’m about to lay out and what I would say to them is or what I would say to you is if you are in that situation that’s perfectly okay. You should still consider hiring your kids. You should still consider paying your kids because you have the ability. We have, we all of us, we have a marketable skill and anytime you can pass a marketable skill down to your children and at the same time teach them about business, teach them about entrepreneurship, get them get them involved in your work. Not only are they going to learn some very very tremendously helpful things for that they can apply in their own life but they get to spend extra quality time with you. They don’t just see you working from the outside.
0:02:03
They actually get to participate in your life and in your business. And that is a huge benefit to them, regardless of tax strategies, regardless of finances or anything else that is going on here. So I would encourage you to continue watching this video to understand opportunities that we have in the United States to take a concept like that and make it even more advantageous, but knowing that you can’t implement something like this doesn’t mean you shouldn’t hire your kids or you shouldn’t watch the rest of this video.
0:02:35
It has benefits outside of the tax implications that we are going to talk about in this video, okay? For those of you who are in the United States, if you’re not hiring your kids and paying your kids, you are doing yourself and your business and your kids a massive disservice. A massive disservice. Now this is just my personal opinion. You may want to talk to a CPA, a tax attorney, and see if they feel that it’s a massive disservice as well. But it is my opinion that it is a massive disservice to all parties involved. Okay? Because you have the opportunity. Let’s talk for a minute about this concept of generational wealth, this concept of getting your kids started off on the right foot, not just financially, but mentally and emotionally and with marketable skills and with a mindset of entrepreneurship, that is a very, very powerful thing.
0:03:31
You send them, most likely you send them to school. I don’t care if you send them to public school or private school or if you homeschool, it doesn’t matter to me. But we know in the United States, even though this is a very entrepreneurial country, the school systems, whether private or public, don’t do a good job of teaching entrepreneurship or encouraging entrepreneurship. They certainly don’t teach entrepreneurship skills. They don’t put kids in a situation where they are going to grow their entrepreneurial mindset and thus if you believe in entrepreneurship and if you believe in owning your own business and controlling your marketability then this is something that you are going to have to pass on to your kids. They’re not just going to pick this up by osmosis unless you’re lucky.
0:04:20
I happen to be that kind of person. My parents are insanely risk-averse. They encouraged me to get a corporate job. They encouraged me to go get a degree. They encouraged me to do all the standard things. But my nature was entrepreneurial and thus I knew that those things were not the right avenue for me. So I chose to pursue my own path. Not everybody will do that. There’s a lot of people stuck in the corporate world who really are entrepreneurial but because they have been given no entrepreneurial skills, they have been given or no ultra no entrepreneurial mindset has been cultivated in them, they stay where they’re at, they hate their life, they hate their job, they’re not doing what they were meant to do, they’re not bringing their gifts into the world and they’re not getting paid what they should be paid if they were doing their own marketable skill on their own.
0:05:18
Ok, so we’re talking about kids, we’re talking about making sure that your kids get off on the right foot with the right mindset and the right skills but also, also, this is key right here, they can also get started off on the right foot financially in the sense that, I want you to imagine a scenario, your child gets to age 18 and they already have a fully funded Roth IRA retirement account. They already have the ability, by the way, because of Roth IRA rules, to purchase their first home. They already have a down payment tax-free on their first home. They even could have an education fund set up that is tax-free, and so they have money at age 18 for college, university.
0:06:06
They can be in a situation where they can start their own business right from the jump, if that’s what they decide to do. They already have the funding to start their own business right from the jump. There’s a lot of possibilities here, okay? And what I’m gonna show you how to do is in the United States, make that possible tax-free. So that the money that your children are getting is not taxed ever at any point.
0:06:34
It flows straight from the revenue that comes in, straight to your child, straight to their bank account, their Roth IRA, their education fund, all of that. All of that can be done tax-free. And it is all within the current guidelines of the tax rules 100% from a Very long time. I think probably since the start of tax rules tax rules in the United States You have been able to hire your kids. Obviously, we have child labor laws in the United States You cannot hire somebody else’s child. You can’t hire children in general unless they’re your own children. So you can’t go hire a 10 year old, that’s illegal.
0:07:18
But you can hire your own 10 year old because the United States has always acknowledged and recognized family owned businesses. And so a family owned business has a lot of advantages that they can do in their family that other businesses can’t do. Chick-fil-A can’t hire kids. I can hire my own kids. It’s a family owned business, understand? So, being that it’s a family owned business and being that this is a child, there’s also tax implications or special tax treatment for the child in certain circumstances.
0:07:56
So what I’m gonna do is I’m gonna share my screen and we are going to start to map this out. And as we talk about paying your kids and the tax advantages for paying your kids and why you would wanna do this, we’re also going to lay out some of the other avenues that you should be thinking about in terms of how taxes work for businesses in the United States. Because this honestly is a huge point of confusion for a lot of people.
0:08:22
It was a huge point of confusion for me for a very long time. Unfortunately in the United States, the tax code is extremely complex. So we’re, you know, we all feel, I think the rates are too high and people pay too much in taxes. What the real problem is, is the complication of the tax code. The amount of hoops that you have to jump through to do things correctly and to comply and the amount of money that you have to pay. I pay thousands of dollars every single year to a CPA and to a tax attorney to make sure that we’ve done everything right, that we’re paying what we’re supposed to pay, and that we’re also taking advantage of every possibility that we can take advantage of.
0:09:07
All legal avenues to reduce taxes are being pursued. I have to pay a lot to advisors to make that happen, and that should not be the case. The tax code should be very simple and very easy to understand and very easy for everybody to comply with. If that was the case, I think we would all be better off, we would all be happier. Oh, by the way, not just spending thousands of dollars to advisors, I personally have to spend hours and hours and hours. Half of my December every year goes to tax compliance and talking to my CPAs and meetings and getting records and doing all this other stuff. Even into January and February, there’s still stuff that I have to do to make sure that we’re complying with the tax code on top of writing very very large checks to the federal government as we call them Uncle Sam.
0:10:02
Okay, this should not be the case. Now, because the tax code is so complicated and all these special rules have been put in, there are things that you can take advantage of and that you should be taking advantage of because that money that you save can be reinvested in your business. That money that you save can be used for marketing your business, for hiring more employees. That money that you save can go to another person’s family so that they can more easily put food on their table and on and on and on and on and on, okay?
0:10:39
If you send it to Uncle Sam, I think we all understand, it’s going to basically be burned in a pile and it’s going to go nowhere and do nothing for anybody, okay, and at worst, it’s gonna do some very, very bad things overseas. So we need to make sure that we keep our money and we put that into productive areas. Okay, that’s my rant there. So now, let’s talk about your business. I’m going to add this right here, all right? Your business. Keep in mind, reiterate, I am not a CPA, I’m not a tax attorney. I’m going to lay it out as I understand it to work and the way that it works in my business, consult your own CPA, consult your own tax attorney. In the United States for the most part there are two different types of businesses that you want to own. One is an LLC.
0:11:32
So you can have your business as an LLC. This is a limited liability company. Now there are, contrary to popular belief, this is where a lot of confusion comes in, there are no, zero, no tax advantages to owning an LLC. A lot of people think that there are, there are not. It does not give you any tax advantages whatsoever. What it gives you is legal protection. It is a limited liability company, that’s it. It doesn’t give you any tax advantages beyond that. Every dollar that that makes flows right through to you personally on your personal income tax return and you pay the normal tax rate that everybody else takes minus expenses obviously okay but all of that profit all of that profit goes in and that’s it that’s it you’re taxed and it doesn’t really save you much of anything. Now there’s another kind of company that you can start called an S corporation and in fact your LLC can be converted into an S corp.
0:12:37
It can be taxed as an S corp and the S corp is where you see the tax advantages start to come in. Now you can’t just convert any business to an S-Corp because there’s a lot of complicated things that you have to do to comply with being an S-Corp and it does cost you more money to do your taxes at the end of the year as an S-Corp. There’s a lot of things that go into it. You have to have bylaws, you have to have meeting minutes, you have to do a lot of extra documentation, there’s a lot of stuff that you have to do. So there’s a generalized cutoff for where it makes sense to convert from an LLC to an S-Corp. This is all my understanding. Talk to your own CPA, talk to your own tax attorney. Okay? So the general cutoff as far as I have been advised by multiple people is around $50,000 a year in revenue. You’re probably better off being an a LLC just a plain LLC if your business makes more than $50,000 per year then you are better off being an S Corp in most Situations and all it is is one piece of paper It’s it’s an S Corp election where you start out as an LLC and then you elect to be an S Corp at the end of the year.
0:14:05
So you can start out as an LLC and if you end up making more than $50,000 in revenue, you can elect that you were an S Corp the entire year. Ok, so that’s as far as I understand that is a very very common thing. Ok, I am an S Corp, alright, and you want to make that conversion as soon as you cross that $50,000 a year mark, go ahead and make the conversion to an S-corp. Now when you are an S-corp, we’re going to make this a vertical mind map here, okay? So remember, revenue comes in, let’s put this up here, so we have clients, alright, that bring in, can I write on this line? I thought there was a way to write on the lines. Do we add a I don’t know I don’t know we won’t work this is alright so clients I’m just gonna put revenue right here. Alright so we have clients revenue coming into your S Corp. Now where does the money go from your S Corp?
0:15:05
Well of course we have expenses so it goes out to all of your expenses. It also as the owner and this is a very very confusing thing. This is where so many people get confused by this because with an S corp you actually have to pay yourself two different ways. This is part of the regulations of being an S corp. So you have you, we’ll just say owner and then I’m gonna put W2 in parentheses and then over here there’s gonna be owner and I’m gonna put draw, okay? So let’s just talk about this for a second and then we’ll move on. When you are an S-corp, you have to pay yourself an acceptable salary.
0:15:50
How does the IRS define acceptable salary? They don’t. Exactly, lots of confusion, lots of consulting people. What do I do? Because here’s the thing, they don’t define what an acceptable salary is, but if you don’t pay yourself an acceptable salary, they’ll come after your ass, right? So it’s kind of weird. It’s like, we’re not gonna tell you what the rule is, but if you break the rule, we gonna get you, right?
0:16:16
And I was like, come on, man. Like, this is a little ridiculous, right? So what the acceptable salary is supposed to be is, if you hired somebody else to do your job, how much would you pay them? That’s kind of the acceptable standard. So what you have to do, and this is based on, by the way, the revenue of the business. So if it’s a million dollar business and you put somebody in the CEO seat, right? So let’s just say CEO, we’ll say owner CEO, right? You put somebody in the CEO seat of a million dollar business, it would stand to reason that the amount you pay them is higher than if you hired a CEO to run a $200,000 business.
0:16:58
Make sense? So as your business gets bigger, your W2 pay should get higher. And that’s what the IRS wants to see. Now there’s a lot of wiggle room, right? Because one agency that’s making a million dollars might pay a CEO $60,000 a year, and another agency might pay them $100,000 a year. So it’s very subjective as to what is acceptable pay. For the most part what the IRS is not wanting to see is that you hired a CEO and paid them $10,000 a year or $20,000 a year because that’s really not a reasonable salary for that position in a company of X size.
0:17:33
Ok now why does this matter because the owner has to pay what’s called the, when it goes through W-2, the owner has to pay what’s called FICA tax. I think this is something like a 15, 15 something percent tax. And this is what goes to Medicare, Medicaid, all that stuff, right? Social Security, the money that you’re never, ever going to pay income tax at X percentage based on your total income. So part of your money goes off into FICA land and part of your money goes off into income tax land. Now there’s also this thing over here called an owner draw. And the thing about the owner draw is that there’s no FICA. It’s just income tax. So you save every dollar that can come through the owner draw can skip FICA land and it can go straight into your bank account and all you have to do is pay income tax on it.
0:18:35
So every dollar that gets paid over here you’re saving 15% on in taxes. So what most people want to do obviously if you’re making let’s say let’s say you could funnel a hundred and fifty thousand dollars into your bank account. Well how about $50,000 goes through W-2 and gets FICA’d and then income taxed and then we take $100,000 and move it through here and it doesn’t get FICA’d, it only gets income taxed. You obviously want to maximize the amount that’s coming through this orange owner draw channel right here and you want to limit what’s going through the green channel.
0:19:15
You only want to send money through the green channel up to that acceptable amount, right? Beyond that, it benefits you in no way whatsoever. It only harms you. So you have expenses, you have owner W2 income, owner draw. Okay. And then we need to see what else we have. Well, we have employees that we have to pay. Employees are also W-2. And when you have employees, there’s also taxes that you have to pay for them. On top of the taxes that they pay, you also have to pay taxes for them. So it’s advantageous if instead of having employees, you can have contractors, because a contractor is responsible for their own taxes. This is all important to paying your kids, by the way.
0:20:05
We’re not just doing a whole overview of how taxes work in the United States, but I do wanna put this extra stuff in there just for people who might be confused. And when I talk about paying your kids, you’re gonna have all these other questions anyway, so it’s important for me to cover this stuff. Here’s another regulation. If the employee works for you exclusively and they come to your office and you know if they’re a legit employee then you have to hire them as an employee and you have to give them a W-2 and you have to pay the extra taxes on top for compliance and all of that, okay?
0:20:40
If they’re not working for you exclusively, if they use their own equipment, if they’re working in their own office or their own house or whatever, they can be a contractor. And when they’re a contractor, you get to save because you don’t have to pay this money right here. You just pay them and then they have to worry about their own taxes, okay? All right, so we have expenses, we have the owner paying two different ways, then we have employees, and then we have contractors. Okay, I think we’re basically where we need to be to start talking about paying your kids.
0:21:13
So you’re gonna hire your kids, right? They are going to be under this column, but there’s one more step that you have to take, okay? We’re going to create what’s called a family management company, okay? But this is, in the United States, what’s called a sole proprietorship. A sole proprietorship is more or less when an individual engages in business practices. And with a sole proprietorship, you don’t see them very often because most businesses don’t wanna be a sole proprietor because one, there’s no tax advantages, and two, there’s no legal protection. So if somebody sues your sole proprietorship, they’re suing you, Bob, okay?
0:21:55
So Bob is on the hook because there’s no layer, there’s no barrier in between the person coming after Bob and Bob. If someone sues my company, there’s an S-corporation layer in between me and them. And they can sue the S-corporation, but they ain’t getting me. That’s the whole point of having that legal barrier and setting up these organizations the right way. It’s not just for tax purposes, it’s also for legal protection, right? So family management company, sole proprietorship, you don’t really have to file any paperwork, you just declare, hey we just open a bank account and declare that this is what this bank account is for, it’s for our family management company. And so your business pays your family management company as a contractor, so the family management company gets a 1099, alright, the end of the year, they have to file that saying hey we got X amount of dollars and then we also had here, that’s the kicker, we had X amount of expenses as well.
0:22:54
This is effectively a pass-through organization. This is money passing through here. Why does this have to be set up like this? I don’t 100% know. That’s why you should ask your own CPA or your own tax attorney. This is how I was advised to set it up and so this is how it’s set up. All right, so the family management company then pays your kids.
0:23:17
I have three children, child number one, and then we’re gonna do an enter. Yeah, child number two, and then child number three. So I can pay three children because that’s all I have. Remember, I can’t pay anybody else’s children. If I could pay my neighbor’s children, I probably would because they would get the same advantages that I’m about to lay out to you. If I had a best friend, I’d want to pay their child too because they could take advantage of what my kids are taking advantage of. Alas, I can’t. Those pesky child labor laws. We can’t just hire everybody’s children, okay? Now, here’s the thing. Your children, what are the tax implications for them?
0:23:57
Well, because they’re not an adult and because they’re not an actual employee, they don’t actually have to file any taxes, right? In the United States, children don’t file taxes at the end of the year. Now, if a child happens to make above a certain amount, then, then, then they would have to start paying some tax. Then they would have to start reporting something. Because you can’t just be like, I’m 10, I make a million dollars on my NFTs and all this other stuff.
0:24:24
I’m a YouTuber, right? And I’m making a million dollars. Guess what? That’s all tax free because I’m 10. That’s not how the IRS works. The IRS is like, ah, no, we want a piece of that. Okay. So if you’re making above a certain amount, you have to file and report and all of this other stuff. Now there is, what is called a standard deduction in the United States. Everybody has access to it. It is, I think 13,000. Okay. 13,000. We’ll just say 750. It’s around there somewhere.
0:24:52
Now, every single individual, that means every child, gets a standard deduction of $13,750. That means if a child makes below $13,750 in a calendar year, there is no tax implication whatsoever. Because even if they filed and said, hey, I made $12,000, will they immediately get that money returned to them anyway? There is, it’s not taxable because they have to make over 13,750 before the taxes would kick in. Okay, so what you have when you hire your child, which you can legally do because they’re your child, is you have a $13,750 buffer where if you pay them they won’t pay any taxes.
0:25:43
Well guess what? Your business is paying them as a contractor which means the money you pay them also does not get taxed. It’s an expense just like everything else. Ok so you pay up to this amount. Alright we’re going to do the little math here. I cannot do math in front of people. All right, $41,250. So I’m going to stick this over here. 40, can I put something over here? Okay. 41,200 and let’s, yeah, let’s put a 41 there. And then can I make this bigger? It’s been a while since I’ve used Whimsical. Okay. So $41,250 can flow tax-free from your business to your children. Now, there are some rules here, okay? If child one is 10 years old and child two is seven years old and child three is five years old, okay? Should I put like years here so we don’t forget what these are? Seven years, five years.
0:26:50
Can you, the question is, can you hire a five year old? Can you hire a seven year old? Yes, absolutely. Because when the IRS talks about hiring your children, they don’t define an age, just like they didn’t define what the acceptable pay is for the owner of a company making a specific amount of dollars, okay? Now, can you get away with my two year old works in my business?
0:27:14
Mmm, probably not. Okay, probably not. But a five-year-old is competent and capable to do many, many different things. So here’s what you have to do. You have your children sign an agreement that they are working for your business at a specific rate, at a specific pay schedule, and then you actually list out their duties. What are their duties in the business? Well guess what? Even a five year old can help file papers, they can shred papers, they can clean up the office, they can do a lot of different things.
0:27:52
There’s a lot of stuff that a five year old can actually do to help inside of a family business. Would Chick-fil-A hire a five year old to shred documents and to clean up? No, not only can they not, legally they can’t, but they just wouldn’t. But you don’t look at your business as a Chick-fil-A. You look at your business as a family run business. And if you look at family run businesses, notorious, the kids work often for free in the family business to help the family business, to keep the family business running so that the family business can save money and also to teach that child skills. So as they grow older, they can do more meaningful work in the family business.
0:28:34
And then maybe even one day take over the family business. That is extremely common in any entrepreneurial family. Okay? So all, the only difference here is you are documenting what your children do, and then you are compensating them for that work and by compensating them for that work you don’t pay taxes on that money. Okay, if this $41,250 went to an employee I would be paying taxes on it. If this $41,250 went into my personal account through owner draw I would be paying income tax on it. But if that 40, now here’s the thing, here’s the kicker.
0:29:14
Because this is specific with children, right? Let’s say my child who’s 10 goes to private school and that private school is $10,000 per year. I would have to take what most people do and this would be the, this is just not the way to do it because you’re just burning money, okay? You take the $10,000, let me put this over here and let me grab a 10. Okay, here is a 10, $10,000. Okay, here’s my little $10,000.
0:29:45
I need this money to pay for my 10 year olds private school. So the revenue comes in, here’s that 10,000. And I say, whoop, you’re going over here through the owner draw channel. You’re getting income tax. So I don’t even have the $10,000, 35% of that $10,000 vanished. Okay. And then I go try to pay my daughter’s school. So in actuality, I have to make a what? 30, 13,000. I don’t, I don’t know.
0:30:13
I don’t, we’re not doing math. Okay. I got to make more than $10,000 in order to pay for my child’s $10,000 per year school. Understand? Or let’s put it back to where it was, $10,000 comes into my business and I say, well we’re going over here and we’re going down here and we’re coming right here and now this goes off to the child’s school and it has never been taxed. Why? Because the child is getting compensated for the work that they’re doing in their business. They don’t pay taxes, I don’t pay taxes on it, that money goes right off into the private school. Okay?
0:30:53
So in order to pay $10,000 for my child’s private school, I only have to make $10,000. All right? If I needed to bring this through owner draw and then send it off to my kids, which is what most people do, because that’s what you do when you work for a corporation, you make $100,000 a year. Or let’s say you, this is use 10. The corporation pays you 10, you get taxed on it, then you use that money to try to pay your kids’ school. But you gotta make a lot more than 10 to be able to pay 10, all right?
0:31:19
You have an advantage as a business owner, as an S-corp, as an S-corp that knows to hire their children. You have a big, big, big advantage. But this is not all, my friends, this is not all. If you take this $10,000 and you bring it over here, and it goes out here, and it goes to your child’s education, like, I mean, this is good. It’s not like, uh, you know, we’ll say private school. It’s not bad to invest in your child’s education with this money for sure. It’s not bad, but there’s other things that you can do.
0:31:49
Okay. So guess what? A 10 year old child can have a Roth IRA retirement account. Well, here’s the thing about a Roth IRA retirement account. Typically there’s two types of retirement accounts okay. There’s more than two. There’s more than two but the main ones that you’re gonna hear people talk about is an IRA and a Roth IRA. An IRA you can put $10,000 in. I’m gonna I’m gonna make another $10,000 here okay and we’re gonna make this investment money okay. Let’s we’re gonna invest this. All right let me center that up. Cool so here’s this $10,000 that we want to invest.
0:32:27
We bring it down here. There’s an IRA and there’s a Roth IRA. With an IRA, if you’re $10,000, because let’s say you don’t have a business, your $10,000 is coming in here and you want to invest it. You don’t want it to be taxed. Okay? So what do you do? You send it off to an IRA. So it’s allowed to go fully this full 10,000 is allowed to go in this IRA over here and it will not be taxed and then guess what? It can grow in the IRA tax-free, but when you take it out at retirement age, that’s when you’re going to get hit with the income taxes on it.
0:33:05
So you’re allowed to invest it tax-free, it can grow tax-free, but when you take it out, bam, they hit you. Now there’s another type of IRA called the Roth IRA. Okay, so the Roth IRA is here comes this $10,000, right? Here it comes, but bam, it gets hit by this income tax. Okay, so now it’s $7,500. $7,500. Okay, now it’s $7,500, but you get to park it in a Roth IRA. And you’re like, but Kevin, what, that already got taxed. Exactly. It got taxed and dropped down to 7,500. But when you put this in the Roth IRA, guess what? It’s now allowed to grow tax-free. So all the interest that you make on it, tax-free. And then when you take it out at retirement age, you’re not taxed on it. No more taxes. So you get to grow this money tax-free and then get it tax-free as long as you take it out at retirement age. That’s how this works.
0:34:04
Okay, but normally in order to use a Roth, guess what? You have to use money that was already hit with taxes. They already took it from you before you got a chance to put it in. And by the way, the Roth IRA limit is like $4,500 or $5,500. I don’t know. It’s somewhere around here. It’s not, I don’t think it’s $7,500. So you’re not going to be able to, you know, park all of it in there anyway. But let’s just say $5,500 is what you parked in there. Look up the limits, I don’t know what they are. Okay, the thing is your child, let’s say 5,500 is the limit. Remember this 5,500 already got taxed. It wasn’t 5,500 to start with.
0:34:39
Maybe it was 7,000 or 6,000, whatever it was. Some of the money got taken. Your child on the other hand, let’s say we pay them 5,000. Okay, we’ll just round this off. They want to invest it, right? So it comes through, here’s the $5,000, comes through untouched, untouched, untaxed. Here, hit some untaxed. Guess what? Right into the Roth IRA, untaxed. Which means that they get to take $5,000 a year, let’s say, and put it in a Roth IRA, and that’s tax-free money. It grows tax-free, and when they reach retirement age, they can take it out and still pay no taxes. Your child can have hundreds of thousands of dollars potentially depending on how it’s invested because by the way a Roth IRA you don’t just have to get boring stocks and bonds and things like that. You can actually do what’s called a self-directed Roth IRA which means I self-direct the money that is in there. More paperwork, more regulations, talk to your tax attorney, talk to your CPA. You can do a self- directed Roth IRA, which means that they could take that money and you could take that money with them and invest it in real estate. You could buy a business with it. You could do a lot of different things and say I’m self-directing my IRA.
0:35:58
All of that money, whatever happens to that money, if that $5,000 turns into $50,000, if it turns into $100,000, if it turns into a million, it started out tax-free, it grew tax-free, and when they take it out, it’s tax-free. And remember I said your house, right? Because there’s special rules for taking out money from a Roth IRA. Normally you have to wait until retirement age. Under special circumstances, you can just access the money tax-free. One of those special circumstances is buying your first home. So if your child’s like, hey, I’m ready, I’m 24 years old, 25 years old, I’m married, I’m ready to buy my first home, they can already have their down payment sitting there ready to go in their Roth IRA.
0:36:43
And that money was put in tax-free, grew tax-free, and they get to take it out tax-free, right? So massive, massive, massive tax implications. You are able to funnel, now I say 41,250, this depends on your children’s ages, okay? If your child is 17 and 15 and 13, okay? 100%, all that entire bam, bam, bam, 41,250, you’re gonna have no issues whatsoever. If your children are like 10 and seven, we put these back, and five, okay.
0:37:19
Now, this 10 year old, you may be able to justify, I can find a way to pay them $13,750. A seven year old, they may make, you know, 7,750 or something like that. And this five year old, they might make 4,500, right? So the amount you’re paying them has to match their duties and what they’re actually doing for the business, okay? What is the reasonable amount? There’s no definition for reasonable amount. So you need to talk to your CPA, your tax attorney, whatever, and you need to figure out the strategy that you’re gonna go with that makes sense based on their experience.
0:38:04
But as your children get older and they grow in skills and their responsibilities and the business grow, obviously you can pay them more and more and more. But guys up to $41,250 tax free going straight to your children that they can use tax free, that they can invest tax free. If you’re doing this from the age of five to the age of 18. Okay? That’s 13 years. 13 years of being paid tax-free and investing that money potentially tax-free. Have you seen the retirement charts and the investment charts where it shows you the difference between if you start at 20 and you start at 40?
0:38:47
There’s a massive difference at where you end up, right? What if you start at five? The charts don’t even start there because most people can’t start there, right? But you, your kids, your kids can start there. So what I would encourage you to do, if this intrigued you at all, and guys, we talk about generational wealth, we talk about getting kids started on the right foot, let’s go back to the fact that you’re getting them started on the right foot with skills and mindset and this entrepreneurial heart, right?
0:39:15
You get them started with that, but you’re also getting them started massively with a financial headstart. And if your business can’t afford to pay $41,250 to your kids, it’s okay. Every dollar that you’re able to funnel down to them tax-free matters, because you’re gonna, you gotta buy them stuff anyway. You gotta buy them stuff anyway. People are like, I can’t afford to pay my kids.
0:39:40
You pay them anyway. You buy their shoes, you buy their clothes, you buy Christmas gifts, you buy all this stuff for them. You could be buying that stuff with money that has not been taxed. Currently, you’re buying that stuff with money that was taxed. The only difference is it’s gotta go into their account and then they buy it. It’s all right.
0:40:00
Let them buy their own stuff guess what now you’re teaching them about personal finance now you’re teaching them about budgeting now you’re teaching them about saving and investing these are things you should be teaching them anyway the only difference is we’re not using play money we’re using real money because that’s how we roll in the Geary household right G unit right you understand hilarious okay inside jokes inside jokes now look at this. Go talk to your CPA. Go talk to your tax attorney, understand? Figure out how to get this implemented in your own business. Now, there’s a bunch of personal tax strategies beyond just this, but I wanted to show you this to get you started because this is one of the most impactful things that you can do for your business and for your children right now, okay?
0:40:48
You can implement this right now. It does not take a lot of effort to implement. All you have to do is get advice from your CPA or your tax attorney. Okay? If you have any questions, drop this down below. I’ve said about 70 times, talk to your CPA and talk to your tax attorney. So when I answer your questions, I’m answering them from an, like a, you know, entertainment purposes, right? We’re not, this is not advice, this is not anything else. It is go talk to your CPA, but I will tell you answers to your questions based on my own personal experience with the caveat that you should be getting advice from your CPA or your tax attorney, okay?
0:41:29
All right, that’s it for this video. People heavily requested this, and I wanted to get it done so that you guys can get started on this stuff ASAP with the advice of your CPA and your tax attorney. And that is it. Peace.
