Tax Benefits of Hiring Your Child for Your Business

As a business owner, finding legal ways to reduce taxes, maximize deductions, and keep more money in your family is always a smart move. One overlooked strategy is hiring your child to work for your business. Not only does this provide tax benefits, but it also teaches your child valuable financial and work skills.

At North Georgia Tax Solutions, we specialize in tax planning for business owners, helping them take advantage of strategies that lower taxable income. Here’s how hiring your child can save on taxes while benefiting your family.

1. Reduce Your Business’s Taxable Income

One of the biggest advantages of hiring your child is shifting income from your higher tax bracket to their lower or tax-free bracket.

• In 2024, the IRS standard deduction for a single filer is $14,600, meaning your child can earn up to this amount tax-free.

• If your child earns below this threshold, they won’t owe federal income taxes, while your business gets a deductible expense for their wages.

This simple tax strategy helps lower your taxable income while ensuring that more money stays within your family.

2. Avoid Payroll Taxes (If Eligible)

If your business is a sole proprietorship, single-member LLC, or a partnership where both partners are the child’s parents, you may be exempt from payroll taxes on their wages:

✔️ No Social Security or Medicare taxes (FICA) if your child is under 18
✔️ No federal unemployment tax (FUTA) if they are under 21

However, if your business is an S-corp or C-corp, payroll taxes apply.

3. Invest in Their Future with Tax-Free Contributions

Instead of just giving your child an allowance, paying them a legitimate wage allows them to:

• Open a Roth IRA and start building tax-free retirement savings early (2024 contribution limit: $7,000)

• Save for college tuition or expenses, reducing future student loan debt

• Learn financial responsibility and money management

4. Keep More Money in the Family

Rather than outsourcing tasks to someone else, why not pay your child for work they can do? Common age-appropriate tasks include:

✔️ Social media management
✔️ Filing and organizing paperwork
✔️ Office cleaning and maintenance
✔️ Marketing assistance
✔️ Customer service support

By doing this, you get a legitimate business tax deduction, and your child benefits financially.

5. Claim a Business Tax Deduction for Wages Paid

As long as you:
✅ Pay your child a reasonable wage
✅ Keep records of work performed (job description, timesheets, payroll records)
✅ Issue a W-2 form

…the IRS considers it a deductible business expense—which means lower taxable income and reduced business taxes.

How to Stay IRS-Compliant

To avoid IRS scrutiny, ensure:
✔️ Fair market wages—You can’t overpay your child just for tax benefits. Their pay must be reasonable for their role.
✔️ Proper documentation—Keep detailed timesheets, payroll records, and job descriptions.
✔️ Issue a W-2—If your child is on payroll, they should receive a W-2 form at year-end.

Is Hiring Your Child a Smart Tax Strategy for Your Business?

If you’re a business owner looking to legally reduce taxes while keeping wealth in the family, this strategy is a win-win. You can:

✅ Lower your taxable income
✅ Eliminate or reduce payroll taxes
✅ Provide financial benefits to your child

At North Georgia Tax Solutions, we specialize in business tax strategies that help you maximize deductions and reduce your tax liability. If you’re considering hiring your child, we’ll guide you through compliance, payroll setup, and tax optimization.