Day 7 – How to Hire Your Kid Legally — And Save Taxes

Hiring your child might sound like a sentimental idea, but it’s actually a strategic tax-saving move—if done right. The IRS allows business owners to hire their minor children under certain conditions, offering both tax deductions for your business and income tax benefits for your child. Here's how to make it work legally and efficiently.

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✅ Why Hire Your Child?

1. Your Business Gets a Deduction

Wages paid to your child are a legitimate business expense. That means your business income (and tax liability) goes down.

2. Your Child May Owe Zero Taxes

As of 2025, a child can earn up to $14,600 (the standard deduction) without paying any federal income tax—as long as it’s earned income (i.e., wages, not gifts or allowances).

3. No Payroll Taxes for Some Businesses

If your business is a sole proprietorship or a partnership where both partners are the child’s parents, and your child is under 18, then:

• No Social Security or Medicare tax

• No FUTA (federal unemployment) tax

S-Corps and C-Corps must withhold payroll taxes, regardless of the child’s age. But you still get the wage deduction.

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📋 Rules to Follow (So the IRS Doesn’t Come Knocking)

1. Your Child Must Do Legitimate Work

• Age-appropriate tasks are fine (e.g., filing, packaging, social media help, photo editing, cleaning).

• Work must be ordinary and necessary for your business.

2. You Must Pay a Reasonable Wage

• Wages should be aligned with market rates for similar work.

• Don’t pay your 10-year-old $50/hour for licking envelopes.

3. Document Everything

• Timesheets

• Job descriptions

• Pay stubs

• Employment agreements

4. Issue a W-2

Even if your child doesn't owe tax, you must treat them like any other employee for reporting purposes.

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💡 Pro Tip: Fund a Roth IRA

Because your child is earning earned income, they’re eligible to contribute to a Roth IRA. Imagine the power of compounding if they start investing at age 12!

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🧾 Real-World Example

Sarah owns a design business and hires her 14-year-old daughter to help manage her Canva templates and organize files. She pays her daughter $6,000 for the year:

• Sarah deducts $6,000 as a business expense.

• Her daughter pays $0 in federal income tax.

• The family saves approximately $1,320–$1,800 depending on Sarah’s tax bracket.

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⚠️ What Not to Do

• Don’t pay for chores unrelated to the business.

• Don’t pay in cash without records.

• Don’t forget to file forms—this strategy works best when done by the book.

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Bottom Line

Hiring your kid is a win-win: you reduce your tax bill, your child gains real-world experience and income, and the IRS is totally okay with it—if you follow the rules.

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Stay tuned for Day 8: “Should You Pay Yourself a Salary? (For LLC/S-Corp Owners)” where we’ll dive into what owner compensation really means and how to do it right.