Incorporating parents into the business as board members can add immense value to the decision-making process. This strategy can leverage their years of experience and wisdom, offering a unique perspective that may not be available from other advisors. Some of the benefits include:

• Diverse Perspectives: Parents often provide different points of view, shaped by their unique experiences. This can enrich decision-making and lead to more robust strategies.
• Mentorship: Parents can act as mentors, offering guidance and support in the business world, especially for entrepreneurs who are just starting. By legally structuring them on your board, we can take advantage of the tax benefits. 
• Tax Benefits - you can pay your parents as 1099 Contractors for their Board service.  This IS taxable to them and deductible to you.  However, it is very likely mom and dad are in a far lower tax bracket than you are!

Keep in mind, if your parents are on social security, there is a cap of how much "earned income" they can have.  Before FULL retirement age, you must keep this under the annual limit ($21k for 2023).  If they are past full retirement age, there is more flexibility. 

For example - your parents receive SSI and no other income.  They are in a joint 10% tax bracket while you are in a 35% bracket (killing it)!  If you pay each parent $10,000 for board service, they'd pay about $5,000 less in taxes then you would!

If your parents have a legitimate role in your business, their travel costs related to the business could be deductible AND some travel costs for you to see them for business would be deductible.

This could result in significant tax savings, but it is essential to make sure that the rules set forth by the IRS are followed. Here are some considerations:

• Legitimate Business Expense: The travel must be primarily for business purposes. If the trip is mainly personal with only incidental business activities, the expenses may not be deductible.
• Documentation: The IRS requires accurate records of all deductions, so ensure to keep detailed records of the business purpose for each trip.

Another benefit of integrating parents into your business is the ability to set up a Roth Individual Retirement Account (IRA) on their behalf. Contributions to a Roth IRA are made with after-tax dollars, but distributions during retirement are tax-free. 

Without earned income (salary, 1099 etc) they cannot due this.  Why save at a later age...?  Estate planning!

Here are some advantages:

• Tax-Free Growth: The contributions to a Roth IRA grow tax-free, which can accumulate significant wealth over time.
• No Required Minimum Distributions: Unlike traditional IRAs, Roth IRAs do not require minimum distributions at a certain age, offering more flexibility.
• Ability to Set Up Beneficiaries for a Tax Free Inheritance: Children or grandchildren can be named as beneficiaries for a tax free account

Gifting low-basis stock to parents is another tactic business owners can use. This can be an effective strategy for managing capital gains taxes. Here are some potential benefits:

• Lower Capital Gains Tax: If parents are in a lower tax bracket, the capital gains tax could potentially be less than if you as the business owner sold the stocks.
• Estate Planning:This strategy can also be beneficial for estate planning purposes, as gifting stocks can help reduce the value of the business owner's taxable estate.
  • When your parents pass, the stock can come back to you as a STEPPED UP basis if they do not liquidate.

Overall - the Anomaly Team are fans of setting up your parents into your business since they are already providing counsel to you!  Why not take advantage of the tax benefits as well!