Owning a business isn’t just about tracking revenue and expenses; it’s a way to create a lifestyle. Many entrepreneurs understand they can deduct business expenses, but few realize they can leverage their business to pay for benefits, perks that can build generational wealth and fund new experiences.
Beyond the well-known advantages like establishing retirement plans (such as a Solo 401(k)) or providing premium health insurance through your company, there are other “fun” but powerful benefits worth exploring. Let’s dive into two often overlooked perks of business ownership: legally employing your family and transforming your business expenses into a points-generating machine to enable luxurious, free travel.
Perk 1: Create Employment for Your Family
One of the most effective financial strategies available to business owners is the ability to create legitimate employment opportunities for family members, particularly children or parents who might have limited or no other income sources.
The Tax-Smart Way to Employ Family Members
The core strategy is straightforward: when you earn income in your business, you are likely paying taxes in higher brackets. By paying a wage to a qualified family member for actual work done, you can shift some income from a high-tax bracket to a lower or zero-tax bracket. If your child or parent earns less than the standard deduction threshold, they owe no federal income tax on that income. Meanwhile, you deduct the wage as a business expense, lowering your overall taxable income. This approach keeps wealth within your family while reducing combined tax liability.
A Word of Caution: Keep it Legitimate
This approach must be done properly. The IRS requires the employment to be genuine, with real work performed and reasonable wages paid. For example, your 14-year-old might help manage social media or perform clerical tasks, while a retired parent could handle customer support. Proper documentation and fair compensation are essential to avoid issues.
The Generational Wealth-Builder: The Custodial Roth IRA
A Roth IRA is an exceptional wealth-building vehicle, growing contributions tax-free over decades. However, contributions require earned income. By employing your child legitimately, you generate earned income to fund a Custodial Roth IRA on their behalf. Starting young can provide decades of tax-free compounding giving them a major head start for retirement.
Perk 2: Master Business Credit Card Points for Free Travel
The second delightful benefit is converting your routine business expenses into a powerful points-earning engine to finance luxury travel for your family.
The Strategy: How to Accumulate Points Responsibly
- Obtain a business credit card offering robust travel rewards.
- Use the card for all major business expenses: marketing spend, subscriptions, inventory, etc.
- Set the account for automatic full payment each month avoiding any interest charges, as carrying a balance negates reward value.
The “Untaxed Benefit” of Travel Points
Points accrued from business spending are generally considered rebates by the IRS, not taxable income. You can use these points for personal travel without tax implications. This makes points a uniquely valuable, untaxed perk from your business.
Pro Tip: Transfer Points for Maximum Value
Beyond the well-known advantages like establishing retirement plans (such as a Solo 401(k)) or providing premium health insurance through your company, there are other “fun” but powerful benefits worth exploring. Let’s dive into two often overlooked perks of business ownership: legally employing your family and transforming your business expenses into a points-generating machine to enable luxurious, free travel.
Conclusion
Business ownership grants you the power not only to write off expenses but also to unlock a range of benefits that can help build lasting wealth and create extraordinary life experiences. By legally employing your family members, you can strategically reduce your overall tax burden while providing your loved ones with income and opportunities for financial success.
Additionally, by using business credit cards thoughtfully and responsibly, you can accumulate valuable travel rewards that fund your dream vacations, effectively transforming routine business spending into priceless personal perks. For NRIs navigating the complexities of US tax filing and planning, expert guidance is invaluable, iNRI specializes in tailored tax solutions and strategic planning to help you maximize these benefits and ensure compliance, so you can make the most of your business both financially and personally.
Frequently Asked Questions (FAQs)
1. Is it legal for NRIs to hire their children or family members in the US?
Yes, NRIs who own US-based businesses can legally employ family members, including children, as long as the work is genuine, the pay is reasonable, and proper documentation is maintained.
2. How can employing family members help NRIs with retirement planning?
By providing earned income to family members, NRIs enable contributions to Custodial Roth IRAs,tax-advantaged accounts that grow tax-free over decades, offering a significant wealth-building advantage.
3. Are business credit card points taxable for NRI-owned US businesses?
No, reward points earned from business spending are generally treated as rebates and are not considered taxable income by the IRS. However, bonuses not tied to spending (e.g., some sign-up bonuses) may be taxable.
4. Can NRIs use business credit card points for personal travel?
Yes, NRIs can use points earned from business credit cards for personal travel without tax implications, maximizing the tangible benefits of their business spending.
5. What should NRIs be aware of when using business credit cards for points?
NRIs must use credit cards responsibly paying the full balance monthly to avoid interest charges, which can erode reward value. They should also track rewards and confirm tax treatment, given evolving IRS guidance.
