Several years ago me and my brothers bought the company that our dad and mom started. We agreed to pay them a monthly amount until we had bought out the company. At that time they both continued working in the company, so that amount would be above their salaries. They both retired and the payment for buying out the company continued, but we have reached the end of what we said were going to pay them to buy the company.

They poured every dime they had into getting the company running and now me and my bothers are starting to seeing the benefit of that. They set aside some of the money we paid them, but its far short of what they should have for retiring, and what they would get from Social Security is a crime. So we think the right thing to do would be to continue paying them, but we are not sure what we could call that payment. In particular what the IRS would want to see.

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    It didn't occur to me that you were looking to evade taxes, until your (now removed) ad hominem attack on the friend folk at the IRS. Once that's behind us, I'm expecting members to offer some good advice. Tax related questions should always be followed with a country tag. Your public profile shows US was correct. Dec 4 '21 at 15:11
  • Not looking to "avoid" taxes, as that would be illegal. We pay around 50% of our total revenue in taxes, so we are trying to find legal ways to reduce that. As far as attacking the IRS, what would you call a person who takes large sums of money from you under threat of harm?
    – Krik
    Dec 4 '21 at 16:40
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    When asking a factual question about finance? I wouldn't refer to them at all. You have a legit question, now getting good answers. We do our best to keep name-calling (ad hominem attacks) to zero here. That's it. I hope you find the answers useful. Dec 4 '21 at 20:58
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    @kirk - You forgot to ask a question
    – JohnFx
    Dec 4 '21 at 23:53

In 2021 you can gift your mom 15,000 a year You can gift your dad 15,000 a year. There is zero impact on their taxes or your taxes.

Brother #1 can do the same.

Brother #2 can do the same.

Together you can gift them 90,000.

If any or all of you are married your spouses can also do the same.

In 2022 these numbers go up to 16,000.

Of course this money comes comes from you, not from the company.

Caution. Make sure your gifts don't impact their ability to qualify for some other aid.

Added information: There are suggestions to make them employees or consultants. That switches the tax burden to them. You will either need a W-4 and then withhold taxes, or you will issue them a 1099 if they are consultants. Doing so will make these payments deductible for the business, but taxable by the parents.

Depending on their age the income could impact the amount of their social security, and the taxability of their social security.

  • This is the option we are looking at, but we all are bad at remembering to do things. And while bill collectors will remind you (if you don't have an auto-pay setup), our dad will likely feel bad if he has to ask. We have a couple office people who handles business "stuff" so it be easiest to have it be part of the monthly "bills" and have one check written.
    – Krik
    Dec 4 '21 at 16:46
  • If the parents are retired then gifting them after-tax dollars is likely less tax-efficient than paying them through the business.
    – Hart CO
    Dec 4 '21 at 17:14
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    @Krik: Many, if not most, banks will let you set up regular payments from your account. So if you want to give them the money, just set up regular monthly transfers of $X to Mom and Dad's accounts. Alternatively, you can have the business hire them as consultants, and pay them a salary. Even if they don't actually do anything useful, that wouldn't make them at all unusual in the consulting world :-)
    – jamesqf
    Dec 4 '21 at 18:19
  • @Krik that's what recurring calendar reminders are for (if you don't want to automate the actual transfer)
    – Chris H
    Dec 7 '21 at 14:15

Want to keep the payments going after your liability is satisfied? Now the liability is on the other side. Your business can write your parents a reverse mortgage and keep the payments going. Your business will have to charge a minimal amount of interest (currently 1.15%) and include that interest income in its revenue. Your parents will receive the benefits of a reverse mortgage.

... Robert Siefert, a Boston financial planner ... recommends creating a reverse mortgage - a loan in which the lender pays the borrower. No repayment is due until the borrower dies, moves, or sells the house. Then the loan is repaid, with interest. “This doesn’t have to be a lump sum transaction,” says Siefert. “The kids can write a check every month to Mom and Dad.” The siblings hire an attorney to draw up the mortgage document. Since siblings participate according to their abilities, Siefert recommends having the same attorney create a limited partnership as the entity that makes the loan; it simplifies the bookkeeping. A tax accountant can create a year-end snapshot of the mortgage and tell each sibling how much interest he or she has earned.


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