You can lower your business taxes by hiring your children. This strategy shifts income from your high tax bracket to their lower bracket. The tax savings can be substantial for your family.
The Financial Impact
Let us look at a real example. You pay your college-aged child $23,255 for legitimate services. You write off that amount as a business expense.
This deduction saves you $8,593 in taxes. Your child files a return and owes only $713. Your net family savings totals $7,880. Plus, your child keeps the remaining cash for school.
Rule 1: Legitimate Work Only
The work must be real and necessary for your business. Your child can handle marketing, data entry, or cleaning. Always pay them a reasonable market rate. Keep detailed records of their hours and tasks.
Rule 2: Correct Form 1099 Reporting
Most independent contractors get Form 1099-NEC. Do not use that form for this one-time project. Instead, report the income on Form 1099-MISC. Place the amount in Box 3 for "Other Income." This step protects your child from self-employment taxes.
Rule 3: Bypassing the Kiddie Tax
Many parents fear the kiddie tax. This tax applies to unearned income like investments. Wages for actual services count as earned income. Therefore, the kiddie tax does not apply here.
Rule 4: Multiplied Savings with an IRA
Your child can build wealth with this income. Earned income allows them to open an IRA. For 2026, they can contribute up to $7,500. A Roth IRA grows completely tax-free.
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