How to Hire Your Kids This Summer: Tax-Smart Strategies for Family-Owned Businesses

Summer break offers more than just a chance for relaxation—it’s a valuable opportunity to introduce your children to the world of business and help them build foundational skills that can last a lifetime. At Tax time 365, our virtual firm specializes in working with small business owners across the United States, ensuring you stay tax-compliant while taking advantage of powerful tax-saving strategies. One such opportunity? Employing your children in your family business this summer.

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The Tax Advantages of Hiring Your Children

Bringing your child on board doesn’t just provide them with real-world experience—it can deliver significant tax benefits for your business. Here’s how:

  • Income Shifting: The wages you pay your child for legitimate work are deductible business expenses. This reduces your net self-employment income, thus lowering both your federal income tax and self-employment tax burden.
  • Payroll Tax Exemption: If your business is a sole proprietorship or a partnership where both partners are parents of the child, and the child is under 18, their wages are not subject to Social Security and Medicare taxes. This creates a unique payroll tax advantage. Note: This benefit does not apply to incorporated businesses.
  • Standard Deduction: For 2024, the standard deduction for a single filer is $14,600. By paying your child up to this amount, their earned income may be entirely tax-free at the federal level—while still enabling you to take a full deduction as a business expense.

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Best Practices for Compliance

To stay IRS-compliant and maximize your tax savings, make sure to:

  • Assign age-appropriate and necessary tasks (e.g., administrative work, marketing, inventory management).
  • Pay a reasonable wage that matches the work performed—benchmark against industry rates for similar positions.
  • Document work hours and duties meticulously, maintaining detailed timesheets and payment records.
  • Issue a W-2 form at year-end if your business is required to file payroll.

Life Skills & Legacy Building

Getting your child involved in your business isn’t just about saving on taxes. It’s an investment in their financial literacy, work ethic, and understanding of entrepreneurship. Plus, it fosters family unity and prepares the next generation to carry forward your business legacy.

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Ready to Get Started?

At Tax time 365, we help small business owners navigate the complexities of tax law while taking full advantage of every allowable deduction. If you’re considering bringing your kids into your business this summer, connect with our expert advisors for a tailored tax strategy that works for your family and your business.

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