Many family business owners are surprised to learn that hiring their children can provide more than just an extra set of hands—it can also be a legitimate tax planning strategy.

Whether your child helps organize files, manages social media, cleans the office, or assists with administrative tasks, paying them a reasonable wage for real work may provide tax benefits for both your business and your family.

The key is making sure it's done correctly.

Can I Really Hire My Child?

Yes! The IRS allows business owners to hire their children, provided they:

• Perform legitimate work for the business

• Are paid a reasonable wage for the services they perform

• Receive compensation similar to what you would pay an unrelated employee doing the same job

• Have proper payroll records and documentation

Simply paying your child without having them perform actual work is not allowed and could create problems if your return is examined.

What Kind of Work Can Children Do?

The work should be appropriate for the child's age, skills, and abilities.

Examples include:

• Filing and organizing documents

• Scanning paperwork

• Cleaning and organizing the office

• Data entry

• Social media assistance

• Photography or video content for marketing

• Website updates

• Inventory organization

• Packing and shipping orders

• Administrative support

As children get older, they may take on additional responsibilities depending on their experience and abilities.

What Are the Tax Benefits?

Hiring your child may provide several potential benefits, including:

A Business Deduction

Wages paid to your child are generally deductible as a business expense, provided they are ordinary, necessary, and reasonable.

Income Shifting

Because children are often in a lower tax bracket than their parents, paying them for legitimate work may shift income to a lower-taxed family member.

Retirement Savings Opportunities

Earned income may allow your child to contribute to an IRA or Roth IRA, helping them start saving for retirement at a young age.

Beginning retirement savings early can make a significant difference thanks to the power of long-term compound growth.

Your Business Structure Matters

One of the biggest misconceptions is that every business owner receives the same tax benefits when hiring their child. That's not the case.

The tax treatment depends on how your business is organized.

For example:

• Sole Proprietorships: In some cases, wages paid to a child under age 18 may not be subject to Social Security and Medicare taxes, and wages paid to a child under age 21 may not be subject to federal unemployment (FUTA) tax. These rules apply only if the business is owned solely by the parent or by a partnership in which each partner is a parent of the child.

• S Corporations and C Corporations: Different rules apply. Wages paid to a child are generally subject to the same payroll tax rules as wages paid to any other employee. While the business may still receive a deduction for the wages, the payroll tax exemptions available to certain sole proprietorships generally do not apply.

Because these rules vary based on your business structure and circumstances, it's important to discuss the strategy with your tax advisor before adding a family member to payroll.

Keep Good Records

Documentation is essential.

Maintain records such as:

• Job descriptions

• Time sheets

• Payroll records

• Copies or examples of work completed

• Pay rates

• Employment agreements, when appropriate

The better your documentation, the easier it is to support the deduction if questions arise.

Common Mistakes to Avoid

Some common errors include:

Paying a child who doesn't actually perform work

Paying an unreasonable salary

Failing to keep time records

Not processing payroll correctly

Treating family employment differently than other employees

Hiring your child should follow the same professional standards as hiring anyone else.

Is This Strategy Right for Every Business?

Not necessarily.

Hiring your child makes the most sense when:

• Your business has legitimate work available.

• Your child is capable of performing the work.

• You are willing to maintain proper payroll and documentation.

• The strategy fits within your overall tax plan.

Every family's situation is different, which is why tax planning should always be personalized.

Final Thoughts

Hiring your child can be a great way to teach responsibility, provide valuable work experience, and potentially create tax benefits—but only when it's done correctly.

The most successful tax strategies are tailored to your business, your family, and your goals. What works well for one business owner may not provide the same benefits for another.

At Maverick Tax & Bookkeeping Services, we help business owners implement proactive tax strategies that are both effective and IRS-compliant. Before hiring a family member, we'll help you evaluate how your business structure affects the available tax benefits and ensure everything is set up properly from the start.

Thinking about hiring your child to work in your business? Schedule a tax planning consultation with us before you add them to payroll. Together, we'll determine whether this strategy is right for your business and help you implement it the right way.