Did you know you could be missing out on a valuable tax deduction—and it might be sitting three feet tall at your kitchen table?
Hiring your child is one of the most underutilized yet powerful tax strategies available to business owners. Yes, it’s legal. Yes, it’s IRS-approved. But only if you do it the right way.
The IRS allows business owners to hire their children, but there are clear guidelines you must follow. That includes documenting hours worked, providing a real job description, assigning age-appropriate duties, and paying a reasonable wage. Common tasks may include opening mail, organizing files, assisting with social media, data entry, scanning receipts, or cleaning workspaces.
And no, “just helping around the house” doesn’t count.
You must also pay them through a legitimate payroll process. Handing your kid some cash or Venmo’ing an allowance doesn’t meet IRS standards. A payroll service ensures the paper trail is accurate, and taxes are correctly managed (or in some cases, not owed).
Here’s why this matters: children under 18 working for a parent’s sole proprietorship or single-member LLC don’t pay Social Security or Medicare taxes. That means your business gets a deduction for their wage—and they pay no payroll tax on the income.
Even better? That income can be contributed to a Roth IRA. Since the income is earned, it’s eligible—and if they maximize those contributions from a young age, they could have hundreds of thousands saved by the time they’re 18. That’s real, generational wealth planning.
Let’s say your child earns $6,500 per year and contributes the full amount to a Roth starting at age 10. With compounding growth, they could have over $500,000 by retirement—even if they never contribute again.
But here’s where business owners go wrong:
No documentation of tasks or time
No payroll service or paper trail
Paying unreasonable wages for the work performed
The strategy only works when the setup is clean and intentional. You’re not just giving your child a paycheck—you’re shifting taxable income from your high bracket to their lower (or zero) bracket, while funding their future at the same time.
Curious how to do it right? Watch my video: The Legal Way to Pay Your Kids and Write It Off