Hiring your children in your business doesn’t just keep them busy & teach them life skills, it is a great tax strategy.
Some of the Benefits:
•Income paid through payroll avoids the “kiddie tax” (i.e. where they get taxed at your rate)
•It allows you to provide them with pre-tax spending cash (vs. after-tax if it comes from your paycheck or draws) for discretionary activities like camps, clubs, etc.
•The Federal standard deduction for single filers in 2025 is $15,750, so anything paid up to that will not have any Federal income tax. Even if you were to pay them more than that, their effective rate will still likely be the lowest tax rate they ever have.
•You can set up a ROTH for them & save for their retirement at the lowest tax rates they will ever have
•You can set up a 529 plan for them & save for college at the lowest tax rate they will ever have
Best Practices:
•Children should do the work they’re getting paid for
•They should get paid a fair market value for the services performed
•Your kids should go through the same new employee onboarding process that all employees go through
•Be sure to keep time sheets to support the hours they get paid for
•Pay them via payroll & deposit the money into an account in their name.
Example: Let’s say that Michael hires his 17 year-old to help part-time on social media & marketing. Over the course of the year he pays his child $18,000. His child uses the money to pay for their summer sports camp, purchasing a car, and saving for college.
•Michael has an effective Federal tax rate of 30%, so by paying $18K through his business, he saves $5,400 of Federal income taxes
•His child only has to pay $225 of taxes
You’re not just giving them a job — you’re giving them a financial leg-up, and helping your family save on taxes.
