Discussion:Child Employee (W2&W3)

I assume that the child performed bona fide services for the business. If not, you shouldn't be deducting it.

Also, make the kid wear a shirt with the business logo on it. That makes everything deductable!

It's never too late to file. Your client may have to pay the Sec. 6721 penelty, which works to $50, but you could most likely get that abated if the issue comes up.

There's a valid argument, IMO, that if we can carry the burden of proof that the child did the quality of work and w/o the supervision expected of an older worker, age should not matter. Can your client prove that?

12 bucks? I'm thinking of the Pharmacy Assistants at the local chain grocery store, where I rather believe they don't make that much. In addition to answering questions on medical privacy, they have to handle the weirdest of insurance SNAFUs. The young ladies there been very effective at that for me, w/o bugging Doug the Pharmacist who seems a guy very undesirous of being bugged.

At IRS, I was 100% successful at 100% tossing, agreed tax, kids this young due to proof problems on all scores. Like, any evidence they did anything at all? The "nuclear option," should it come down to the kid's worth as a worker and hours worked, was offer an interview of the kid, and promise it will be gentle, as it should be. Certainly a parent can be present, but for several reasons, the t/p shouldn't agree to that. The kid will fail, too young to mask the fact he/she been coached. Heck, in courtrooms every day, adults fail in this regard under effective cross. "Now Jimmy, we actually like your Daddy, a very interesting guy you must be proud of, and he's not in any real trouble here at all, but did he tell you what to say to me?"  :-)

Only thus somewhat more seriously, if your client has a contemporaneous record of hours, and some evidence of work done, and a plausible description of its effectiveness, I'd consider a Bangladesh rate scaled to the U. S. economy. $2-3, something. IRS-settle B4 you claim, here. Better something, rather than fret over the diligence issues discussed in another thread here, "Preparer's Liability."  ;-)

IRS Agent: You deducted $xxxx for compensation paid to your child. Prove it.

Taxpayer: Um....

IRS Agent: *pulls out disallowance pen*

So, if its legit, keep and go on and don't worry about the audit. If its not legit, don't do it.

With no 941 and W2 filed, should it be deducted and what chance to trigger the audit? It might not worth for him to take the chance and pay for the audit. thanks.

PS, should I suggest him to start filing 941 for 2007 3rd qter and is it too late?

I like that one. Like going to a doctor, who advises that at my age, stuff happens, and let's first try OTC meds and some rest. An 8 y-o can do about anything on percentage of doing it right, properly trained/knowledgable, but can't solve problems. Such as it does, Windows has advanced to the point where software installs and system configs can be done by very ordinary users. There is no bargain market hourly rate for someone (not just here an 8 y-o in knowledge/judgment) to do installs, but be of no help if serious problems arise. I have programmed in Windows as a hobby for over 25 years now, and if I had a little kid like that, I would rather not he/she fiddle if my computer were important to my business. Once you think you know Win computing, and venture beyond default prompts, it can be "Katie bar the door." Your Windows Registry is now trash.

However, if records are maintained as to what the kid successfully does, then that's half the game. Reasonable hourly rate, like filling out FedEx waybills in a home eBay business, relieve a parent of the drudge work. However, note in the above-cited TC cite, where the Court proceeds from the starting point of obligation to support one's kids. An allowance, for which they need to do only minor chores if any, shouldn't necessarily give rise to a tax deduction. And less physical work/more rewarding installing a good Windows app than mowing the lawn! But I digress.

"With no 941 and W2 filed, should it be deducted and what chance to trigger the the audit?"

IRS does not devote resources to correlate that stuff (it could, given another few million for yet another unique software app), and the rationale is that normal audit coverage can surface any one of a 1,000 issues, each little drain on the Treasury (IOW, the $300B tax gap which mostly ain't this kind of stuff -- that IRS knows). It then falls back on the preparer to do the due diligence thing. Forget about how IRS does compliance; claim what you can defend on facts and law (former more important here).