As a parent entrepreneur, one of the best ways to save money on taxes is by hiring your children to work in your business. However, the IRS has specific rules and regulations that you need to follow to ensure that you’re in compliance. Here’s everything you need to know:
Understanding IRS Rules for Hiring Kids
The IRS allows parents to hire their children in their business, but there are guidelines to follow. The work your child performs must be legitimate, and the pay must be reasonable for the tasks they’re doing. For example, a 10-year-old can’t perform tasks that require advanced skills, but they can help with simple office tasks, like filing or answering phones.
Payroll Setup & Legal Requirements
Setting up payroll for your kids isn’t as complicated as it seems. In fact, one of the key benefits of hiring your kids is that their wages can be tax-free up to a certain amount. However, you still need to ensure that the payments are legitimate and that you’re following IRS rules. This includes keeping accurate records of the work your child does and paying them a reasonable wage based on the tasks they complete.
Age-Appropriate Work
The IRS is clear about the type of work that is appropriate for children of different ages. Generally, the work should be simple and not too physically demanding. For example, children under 14 can work in certain types of business, such as a family-owned business, but there are limitations to the type of work they can do. As they grow older, the types of work they can perform can become more advanced.
Maximizing Tax Benefits
By hiring your children, you can deduct their wages as a business expense, which reduces your taxable income. Even better, if your child is under 18 and working for a sole proprietorship or an LLC taxed as an S-Corp, you don’t have to pay payroll taxes on their wages. This is a huge advantage for parent entrepreneurs!
Getting Started
If you’re ready to start hiring your kids, the “Retire the Kids” course walks you through the entire process—from understanding the IRS guidelines to setting up payroll and assigning tasks. The goal is to make sure you’re compliant with the rules while getting the tax savings and teaching your kids valuable life skills.
