Hiring your children in your business can be a powerful tax strategy that also builds their financial skills and work ethic. By paying them a reasonable wage for real work, you can shift part of your business income into your child’s lower tax bracket while keeping more money in the family overall. This approach works especially well for small, closely held businesses that can flexibly define age-appropriate roles for younger family members.
From a tax perspective, properly hiring your children allows the wages you pay them to become deductible business expenses, directly reducing your taxable income. In many cases, children can earn up to the standard deduction amount each year with little or no federal income tax, creating an opportunity to move income out of a higher bracket tax‑efficiently. For unincorporated businesses where the parents are the owners, there can also be savings on payroll taxes for younger children, further increasing the overall benefit.
To use this strategy effectively, the work must be legitimate, the pay must be reasonable for the tasks, and all standard employment formalities should be followed. That typically includes defining clear job duties, tracking hours, running payroll, and issuing a W‑2 so the arrangement stands up to scrutiny. Business owners are generally encouraged to work with a qualified tax or financial professional to ensure they comply with IRS rules while making the most of this family‑focused planning tool.
