You may have heard you can hire your kids to work in your family business for a tax deduction. There are details people leave out. First, the child has to do something legitimate for the business. You can’t pay them for nothing. Younger people can help with tech support, set up printers, file electronic documents or help implement ChatGPT in the business.
Second, use the right structure. Paying them a salary directly may trigger payroll tax, which is a question for your CPA. We’ve also heard of a setup where an S corporation pays a management fee to an LLC with pass-through tax treatment, so the child, as an owner of that LLC, takes $12,000 as a profit distribution and avoids payroll tax. Check with your CPA on the best way to use these strategies.
Key points
- The child must do legitimate work for the business.
- Tech support, document filing and AI tools are examples of real work kids can do.
- Paying a direct salary may trigger payroll tax.
- Some use an S corp management fee to an LLC the child owns. Confirm with your CPA.
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