Many small businesses in Minnesota are owned and run by families. It is worth noting that there are multiple regulations that affect family businesses. A business may be taxed differently depending on how the business is structured and whether or not family members are employed by the business. Following are some guidelines for operating a family-owned business within the boundaries of the law.
Children and other family members, such as parents, often help with a family business. If a business owner employs his or her child, this will affect how the business is taxed. For instance, depending on the circumstances, payments made to children who are under the age of 21 may not be subject to Medicare or social security taxes. Additionally, child labor law regulations may affect the kind of work and number of hours that a child can work. Parents should examine labor laws closely to make certain that the work the child is doing falls within guidelines.
The laws governing family businesses are complicated and can be confusing. A misunderstanding of business law may lead to errors in withholding family members’ taxes, for example. A lawyer with a background in business law might review the structure and family members’ employment status and explain how regulations and the law apply.
Running a business is a complicated endeavor, and maintaining compliance with business law may be difficult for a new entrepreneur. However, many individuals who start businesses may benefit from working with an attorney who is familiar with commercial law. That attorney may be able to provide advice throughout the life of the venture and could help a client comply with state and federal labor laws.
Source: SBA, “Running a Family Business Within the Law”, Jamie D, December 08, 2014
This information is general in nature and should not be construed as tax or legal advice.