Tax affect of employing family members

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Mrs. Kanisha is the owner of Kanisha?s Sub Shop. In order to lower her taxable income from the shop, Mrs. Kanisha ?employs? her three-year-old daughter as a janitor at a salary of $200 per week.

a. Does Mrs. Kanisha?s employment of her daughter reflect economic reality?

b. Should Mrs. Kanisha be allowed to deduct the salary paid to her daughter? What tax doctrine(s) might the IRS apply to disallow such a deduction?

c. Do your conclusions change if Mrs. Kanisha?s daughter is 15 and works 20 hours per week in the shop?

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Solution Preview

Hi there,
<br>
<br>a) no, it is not reality to employ a three year old.
<br>b) She should not be allowed to deduct the salary paid because ...

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