I own an LLC, of which I am currently the sole member. It's my main source of income.
I am wondering if there is a reason why I could not do the following:
- Hire my child as a part-time employee of the LLC, for an annual salary of $5500.
- Start a Roth IRA for the kid and put the $5500 into it.
- Deduct the $5500 as a payroll expense for my LLC, thereby reducing my amount of taxable income.
To me, this seems attractive because I'd lower my LLC's tax liability. Meanwhile, my kid would not have to pay any taxes on the $5500 because it is lower than the standard deduction. And by putting the money in a Roth IRA, he'd get an investment that would grow tax-free. It would essentially be like getting the pre-tax benefits of a traditional IRA with the post-tax benefits of a Roth.
The way I see it, I'd win, my kid would win and the IRS would lose, for once.
Is there any reason this wouldn't work? There is no minimum age or income for contributing to a Roth IRA. So as long as I could legally hire my kid, I don't see any obstacles.