Finance32: Dental School’s Missing Curriculum
Finance32: Dental School’s Missing Curriculum
Great clinical skills simply are not enough for dentists to achieve financial success. Let Buckingham Strategic Wealth's Practice Integration Advisors share what else you need to know to realize your lifetime goals and obtain financial peace of mind.
Buckingham Strategic Wealth

Some Thoughts about Employing Your Children in Your Dental Practice

Some Thoughts about Employing Your Children in Your Dental Practice

6/19/2019 8:00:00 AM   |   Comments: 0   |   Views: 21

Katie Collins, a Practice Integration Advisor with Buckingham Strategic Wealth, helps dentists order their financial lives and reach financial peace of mind so they can better focus on what truly brings them joy.

Each year, right around October or November, dentists are inundated with year-end tax-planning tips. One that usually makes the list is to employ your children in the dental practice. Yes, being the owner of a family-run business does offer you an opportunity to employ your children. And it is indeed a great tax-planning strategy. But it also comes with audit risk. As such, the topic warrants a deeper discussion with your accountant, not least to gauge his or her comfort level with paying your children. At Buckingham Strategic Wealth, for instance, we make it a point to include a dentist’s accountant in these discussions.

Over the years, we have worked with dentists many times to help properly employ their children and realize some potential tax benefits while doing so. Here are a few of the suggestions we generally make.

Have an employee file for your child complete with a job description. Ghost employment is illegal. Your child should be doing something for your practice if he or she is receiving a paycheck from it. It can be a good exercise to talk with your son or daughter about the duties he or she would want to undertake. A few common ones include modeling for marketing materials to promote a family practice, filing, helping with office mailings, cleanup around the office, and landscaping help. Whatever duties you decide your child will help with should be documented in their employee file.

Issue a regular paycheck. Your child should be paid more than once or twice a year and should receive an actual paycheck. If you are a sole proprietor and your child is under 18, you do not need to withhold any payroll taxes. If you operate as a corporation, you will need to withhold payroll taxes, no matter your child’s age. Your child’s net paycheck should be deposited into an account in his or her name.

Help determine how your child will use the funds. With earned income, your child has the opportunity to fund a Roth IRA. The contribution limit in 2019 is the lesser of two amounts, either earned income or $6,000. The funds could be used to offset your child’s current expenses – whether that means the cost of schooling or after-school activities. Your son or daughter could also use their net paycheck to help save for future education. These are just a few options for ways to utilize a child’s pay from the practice.

Each state has their own child labor laws, and these laws determine at what age a child can have a job. Your state may also dictate the number of hours a child can work during the school year. Some states are more lenient when the child is working for a family-owned business. You should talk with your accountant about the rules in your state and how they apply to your situation. As I previously mentioned, you should also discuss with your accountant whether they are comfortable with you employing your child(ren) and at what pay.

In our next article, my colleague, Tom Bodin, will discuss running “personal expenses” through the dental practice. As always, if there are specific topics you’d like us to tackle in Finance32, please send us an email!

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