Hire Your Child to Save Taxes

Hiring your child to work in your business can offer some tax benefits to you. It is a strong tax-saving

strategy for parents. It is very important to understand the rules to avoid any troubles.

Following are some potentials benefits:

 Reduction in taxable income – you can deduct your child’s salaries as a business expense, thus

lowering your taxable income.

 Tax-free income for your child – In some cases, children who are earning less than the standard

deduction amount ($14,600 for 2024) will not owe any federal income tax.

 Social security and Medicare tax exemption – In some cases, children in certain business

structures (sole proprietors (Schedule C), partnerships with both parents) might be exempt from

these payroll taxes.

 IRA Contributions – Since your child has an earned income, you can contribute to an IRA on their

behalf. (2024 limits – Traditional IRA and ROTH IRA up to $7,000). You can contribute to both

IRAs if your contributions do not exceed the limit within the year.

Following are some important things to consider:

 Legitimate work – Your child much be genuinely working in your business. Some examples

include – shredding documents, filing documents, organizing your office, cleaning your office or

company’s car, updating social media accounts, running an errand, etc. Your child must be

performing the work that is appropriate for his/her age.

 Reasonable compensation – You need to pay reasonable compensation to your child for working

in your business. Excessive amounts of pay can raise red flags.

 Tax rules may vary – Depending on the business structure and your child’s age, tax implications

may differ. Please consult a tax professional for specific rules.

 Proper documentation – You need to have the same documentation on file for your child as

other employees. You need to have proper documentation to justify the time and work

performed by your child.

REMEMBER, this is just general information, and the specific details may vary depending on your

situation. Please contact us for more information to ensure compliance. We will help you to maximize

any potential benefits while avoiding any legal or ethical issues.