Ideas for Hiring Your Children in Your Business – Tax Advantages

May 6, 2019

Did you know that you can legitimately hire your kids, no matter what age they are, to work in your business? The IRS Code says you can! As of 2018, each of your children can earn up to $12,000 in tax-free income! Your kids can work, bring home tax-free money, and pay for their own expenses. It’s a great way to teach work ethic, and for the business, benefits like tax strategies. So, I’ll give you the hiring rules and 51 job ideas that allow you to hire your children in your business.

Podcast Time Index for “Should I Pay My Children From The Business?”

00:53 – Should I Pay My Children From The Business?
01:28 – Why You Might Want To Hire Your Children
03:12 – The Strategy
04:22 – What The Internal Revenue Code Says
08:17 – Keeping It All Legitimate
10:42 – Is It Worth It?
14:02 – The Corporation “Problem”, and its Simple Solution
14:52 – The Payroll Tax Workaround For Your Children
16:44 – The Bottom Line
17:29 – Wrap Up

What You Need to Know Before Hiring Your Children

According to the IRS, “Payments for services of children under the age of 18 who work for his or her parent in a trade or business are not subject to Social Security and Medicare taxes if the trade or businesses is a sole proprietorship or a partnership in which each partner is a parent of the child.” Additionally, “payments for services of a child under age 21 who works for his or her parents in a trade or business are not subject to the Federal Unemployment Tax Act (FUTA) tax.” However, “payment for the services of the child are subject to income tax withholding, regardless of age.”

Well, that sounds all fine and good, but what does it mean?

First and foremost, it means that YOU CAN hire your children to work for your business.
Second, there’s no minimum age requirement. Even babies can “work” as models or something else appropriate for their ages.
Third, you only withhold federal income taxes from the children if you operate as a sole proprietorship, an LLC taxed as a sole proprietorship, or a general partnership in which both parents are partners. You do not have to withhold Medicare, Social Security, or FUTA taxes.
However, you must pay all payroll taxes (Medicare, Social Security, FUTA, etc) if you operate as a corporation, as an LLC taxed as a corporation, or as a partnership where only one of the parents is a partner.

Here’s the sweetest part, though. The new standard tax exemption amount for an individual as of 2018 is $12,000. Therefore, as long as you’re paying each individual child $12,000 or less, there are no taxes due AND you get to deduct their pay as a business expense on your taxes.

Keeping Your Kids’ Work Legitimate

Yet, there’s a key to this. Just like we discussed in the previous article about hiring a spouse, you’re not trying to create a fake job with your kids just to shield income taxes. Yes, the IRS allows you to use the tax code to your advantage to lower your taxes, but you want to do it legitimately. You want to utilize the tax strategy properly. Here’s how:

Have your children work jobs that are reasonable for their ages. – On one hand, your babies could model for your print and media advertising campaigns. On the other hand, your 17-year-old could run errands for you or be your delivery person. Your 5-year-old could wash windows for you or water plants, while your 12-year-old could help answer phones for you. So the first thing you want to do is make sure the job matches the age.
The second thing you’re going to do is you’re going to keep accurate records. – If your employees are paid hourly, then track your children’s work by the hour. If your employees are salaried, keep track of their work and their hours, too. You don’t want to make special privileges for your children.
Third, give your children job titles and document the work they have to do. – If your kids are cleaning your office, give them appropriate job titles and make a list of everything they have to clean. You would do that if you hired a maintenance company, right? You would specify what the company needed to clean and how frequently they needed to clean it. Do the same thing for your children.
Fourth, pay your children reasonable salaries or hourly pay for the jobs they do. – If your kids clean your office, get quotes for office cleaning from other companies in your area. Then, pay your kids a comparable pay. If cleaning companies would charge you $1,000 per month, you don’t want to pay your children $3,000 per month to clean your office. That wouldn’t make sense. Therefore, be reasonable.
Finally, pay any and all required payroll taxes on your children. – If you operate as a sole proprietorship, a partnership (with both parents owning the business), or an LLC taxed as a sole proprietorship, you do not owe payroll taxes. However, if you operate as an S Corp, a C Corp, or an LLC taxed as a corporation, then your children’s income is subject to income tax withholding as well as Social Security, Medicare, and FUTA taxes.

To learn about a “work-around” to paying payroll taxes on your children if you own a corporation, be sure to listen to the attached podcast!

51 Job Ideas for Hiring Your Child in Your Business

Now that you know how to employ your children properly, let’s talk about what jobs they can do for your business. Realistically, your kids can:

Act or model for TV, web, or print advertising
Answer customer emails
Answer the phones
Assist with office work
Assist with monitoring social media, including posting on blogs, Twitter, Facebook, Instagram, YouTube, etc.
Assist with website maintenance and updates
Care for the plants in the office
Clean the office or building
Clean company vehicles
Collect rents or other business collections
Create or distribute marketing materials and brochures
Deliver supplies, parts, or orders
Draft correspondence
Edit videos
Host at company events
Landscape and yard work including mowing, weeding, or snow shoveling
Maintain an email autoresponder for customers or prospects
Maintain the office building including light bulb replacement, HVAC filter replacement, etc.
Make coffee, tea, or other snacks for office employees or clients
Make small repairs to the office or building such as painting
Perform research on the Internet
Prepare client newsletters
Prepare spreadsheets for the company
Price shop supplies
Product testing and feedback
Provide bookkeeping and basic accounting assistance
Provide food prep, setup, decorations, cleanup, etc for legitimate business dinners or parties
Purchase office supplies for the office
Purchase supplies for office events
Research competitors’ marketing efforts
Research for new product lines
Respond to social media
Review and monitor the business plan
Review invoices and bank statements
Run errands
Send appointment reminders to customers or prospects
Send birthday cards to clients/customers
Serve on the board of directors
Service equipment
Shred documents
Solicit and compile customer testimonials
Stock supplies
Take notes in meetings
Take photographs for your social media
Take videos
Transcribe audio files or dictations
Transcribe corporate minutes
Use their voice for radio advertising
Valet park for events
Wash the windows
Wash uniforms and towels

What this means to you…

Your kids can legitimately do any of these jobs (and many more), and you can pay them for their work! They receive a tax-free income, and you receive tax deductions. How great is that? Just remember; keep everything legit. Don’t try to scheme the system. Use the strategies that the tax code gives you to teach your kids the value of hard work and to increase your family’s cash flow.
It is always smart to talk to your CPA or your tax advisor before you put any of these ideas into practice. I did my best to give you ideas that are legitimate in every state, but there may be state-specific laws or rules that I am not aware of. If your CPA doesn’t offer you ideas like hiring your kids (or spouse), reach out to me. I work with forward-thinking CPAs all over the country whom I know and trust. I can put you in touch with one of them.