If you have children and you own a business, hiring your child is a strategy worth your attention.
Why Hiring Your Child Saves Your Family Money
Consider one example: A business owner pays her 13-year-old $16,100 in 2026 to work in her Schedule C business. The child owes zero federal income tax because the 2026 standard deduction for a single taxpayer is $16,100. Meanwhile, that $16,100 wage deduction reduces federal and state taxes and puts roughly $6,614 back in the owner’s pocket.
The family keeps the full $22,714 (the child has $16,100, the owner has $6,614).
You can go further. Add a $7,500 deductible traditional IRA contribution to the child’s wages of $16,100, and the child can earn $23,600 with no federal tax at all. Better yet, if the wages stay at or below the standard deduction, put the money in a Roth instead—a deduction is worth nothing to a child paying zero tax, whereas the Roth grows and comes out tax-free.
How Your Business Structure Changes the Savings of Hiring Your Child
Your choice of operating entity matters when hiring your child for your business. In a proprietorship or a spouse-only partnership, wages to your under-age-18 child escape Social Security and Medicare tax, and wages to a child under age 21 escape federal unemployment tax. A corporation gets no such break, which costs the family roughly $2,500 on $16,100 in wages. Even so, this is a valuable strategy for the family with the corporation.
One caution on Section 199A: Wages to your child reduce your qualified business income and shrink that deduction. But if your income is high enough that the W-2 wage limitation applies, the wages can actually increase your deduction.
Do the Paperwork or Lose the Deduction
Finally, do the paperwork. One attorney lost nearly all her wage deductions and drew negligence penalties because she had no W-2s, no payroll records, and no time sheets. Pay by W-2 payroll check, require a time sheet, and document a reasonable rate of pay.
How We Can Help
Sterling Tax and Accounting is here to help your business with tax planning! Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket. If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.
Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.
Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.
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