Save For College By Paying Your Child(ren)
Consider paying your child justifiable compensation for work performed in your business sufficient to utilize your child's standard deduction and/or lower 10% tax bracket. The Tax Court has allowed deductions for amounts paid to children as young as 7 years old for tasks such as cleanup chores, message taking and filing. Of course, the amount paid must be reasonable relative to the work done. Also, you should keep records of hours worked, but the records do not have to be complex. The payments should be made by check. For younger children not yet in college, consider paying your child a justifiable wage so that he/she has earned income in order to set up a Section 529 Plan. The entire compensation amount can be contributed to the plan. The contributions will grow tax free and can be withdrawn tax free for college. When all is said and done, this is a way of deducting amounts you are saving for your child's college education and at the same time using a tax-free method of earning income on the amounts saved.