As a business owner, you spend a great deal of time looking for strategies that support your company’s growth, reduce your tax burden, and strengthen your family’s financial foundation. One of the most overlooked opportunities available to you is hiring your own children to work in your business. This strategy isn’t just legal; it’s encouraged by the IRS when done correctly, and it creates benefits that support your business, your child, and your long-term goals.
Hiring your children provides tax advantages, real-life skill building, and an opportunity to model financial responsibility. At the same time, it strengthens your LIFT - Legal, Insurance, Financial & Tax® foundations (“LIFT”) systems because it requires thoughtful planning and intentional implementation.
In this article, you’ll learn how hiring your children works, the tax rules that make it beneficial, and the steps you need to follow for it to be a legitimate business practice instead of an accidental tax mistake.
Why Hiring Your Children Is a Legitimate Business Practice
Many business owners worry that hiring their children might look suspicious to the IRS, but the opposite is true. The IRS explicitly allows parents to employ their children as long as the child is doing real work for the business and is paid a reasonable wage. In fact, children often bring skills that businesses genuinely need - social media savvy, help with marketing content, administrative support, filing, event prep, scanning documents, photography, inventory management, and even customer service tasks, depending on age and ability.
When your child performs real services, and you compensate them fairly, the IRS treats the relationship just like any other employment relationship. The difference is that the tax code includes special provisions for parents employing their minor children, and those provisions can create meaningful financial advantages for your entire household.
Before exploring those benefits, it’s important to understand one overarching principle: this strategy only works if your child is performing real, age-appropriate, necessary work and you document that work just as you would for any other employee. When you honor that structure, the tax advantages fall naturally into place.
The Tax Advantages Can Be Significant
Now that you understand the legitimacy of the strategy, the next natural question is why this approach is valuable. The tax benefits span several categories, and when combined, they can meaningfully reduce your overall household tax burden.
You Receive a Business Deduction for Wages Paid
Every dollar you pay your child for real work becomes a deductible business expense. This reduces your business’s taxable income, which lowers the amount of tax you owe. For many business owners, this can feel like shifting money from one pocket to another - except now those dollars are deductible.
Many parents already provide their children with spending money, activity costs, clothes, or school support. Paying your children through your business instead allows you to turn some of these ordinary expenses into legitimate business deductions.
Your Child Often Pays Little or No Income Tax
Because the standard deduction eliminates tax on the first $16,100 of earned income in 2026, your child can often earn income tax-free. That means money the child earns carries a much lower tax cost than money you earn in your higher bracket, creating a legal income-shifting strategy within your household.
Families Can Avoid Payroll Taxes in Many Situations
If your business is a sole proprietorship or a partnership where both partners are the child’s parents, the IRS exempts wages paid to children under 18 from:
- Social Security tax
- Medicare tax
- Federal unemployment tax
This means your child receives income, your business gets a deduction, and neither party pays payroll taxes. Corporations do not receive this same exemption, but they still benefit from the reduced taxable income and the child’s lower tax bracket.
You Can Open a Roth IRA for Your Child
Once your child has earned income, they become eligible to contribute to a Roth IRA. Even small annual deposits can grow into a substantial nest egg because they accumulate tax-free for decades. This step alone can give your child a financial head start that most adults wish they had.
How to Implement This Strategy the Right Way
Transitioning from the “why” to the “how” is critical because the benefits only apply if you follow the rules. The IRS’s requirements are straightforward but must be honored carefully.
Your Child Must Do Real, Necessary Work
The tasks should be appropriate for the child’s age and ability and should genuinely support your business. Young children can model for marketing photos or appear in video content. Older children can assist with technology, events, administrative tasks, or creative projects.
Pay a Reasonable, Documented Wage
A reasonable wage means paying your child a rate similar to what you would pay another person for the same job. Keeping time records helps support this. You should also have:
- A job description
- Timesheets
- Payment records
- Examples of the work performed
These records demonstrate that the work is legitimate, not fabricated.
Follow Proper Employment Procedures
Depending on your business structure, you may need to:
- Issue a W-2
- Maintain payroll records
- Follow child labor rules
- Use a separate account to pay your child
Treating your child as a real employee is the key to staying compliant.
Pay Your Child Directly
Wages should go into an account owned by your child. This reinforces the legitimacy of the arrangement and allows your child to decide how to save, spend, or invest the money, with your guidance.
Why Hiring Your Children Strengthens Your LIFT Systems
Strong Legal, Insurance, Financial, and Tax systems are the backbone of a stable business. Hiring your children supports each one.
Legal: You create compliant employment agreements and strengthen internal controls.
Insurance: Your child may need to be added to workers’ compensation coverage depending on state rules.
Financial: You shift income into a lower-tax environment and model financial literacy.
Tax: You reduce taxable income and potentially eliminate payroll taxes.
This single strategy touches every foundational system, which is why it’s so valuable when done intentionally.
Your Next Step
Hiring your children can reduce your taxes, strengthen your business systems, and provide your child with financial skills that last a lifetime. But it must be implemented correctly to achieve the benefits and avoid unintended tax consequences. When you meet with me for a LIFT Business Breakthrough™ Session, I’ll help you evaluate whether this strategy fits your business, how to structure the work, how to set appropriate wages, and how to integrate the strategy into your broader financial and tax planning.
If you’re ready to strengthen your business foundations and implement strategies that work for your whole family, schedule your 15-minute discovery call today.
This article is a service of a Personal Family Lawyer® Firm and LIFTed Advisors® Attorney. I offer a complete spectrum of legal services for businesses and can help you make the wisest choices for your business throughout life and in the event of your death. I also offer a LIFT Business Breakthrough Session, which includes a review of all the legal, financial, and tax systems you need for your business. Call us today to schedule.
The content is sourced from Personal Family Lawyer® for use by Personal Family Lawyer firms, a source believed to be providing accurate information. This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal, or investment advice. If you are seeking legal advice specific to your needs, such advice services must be obtained on your own, separate from this educational material.
We offer a complete spectrum of legal services for business owners and can help you make the wisest choices on how to deal with your business throughout life and in the event of your death. We also offer you a LIFT Your Life And Business Planning Session, which includes a review of all the legal, insurance, financial, and tax systems you need for your business. Schedule online today.