Many business owners overlook a powerful strategy that allows them to pay family for tax savings, reduce taxes, and avoid payroll taxes altogether.
You likely know the traditional approach: hire your child and put them on payroll. That strategy works well for younger children in a sole proprietorship. But once your child turns 18—or if you operate as a corporation—payroll taxes usually apply.
A Little-Known Way to Pay Family for Tax Savings
In the right situation, a lesser-known alternative offers a better outcome.
You can hire a family member for a “one-time project” instead of ongoing work. This structure allows you to deduct the payment at your higher tax rate while your family member reports the income at a much lower rate—often with little or no tax liability. This is one of the most effective ways to pay family for tax savings.
Examples of One-Time Projects to Pay Family for Tax Savings
For example, you might pay your college-age child to design a website, create marketing materials, or complete a facility upgrade. If you structure the work as a true one-time project—not a continuous or recurring one—the income avoids employee status and thus payroll taxes for both you and the child. It also avoids 1099 independent contractor status and thus self-employment taxes for the child.
This approach can generate meaningful savings. In one scenario, a $23,225 payment produced over $7,800 in net family tax savings.
To make this strategy work, you must follow several key rules:
Define a clear, one-time project with a specific scope.
- Pay a reasonable, fixed amount upon completion of the project.
- Avoid hourly wages or ongoing tasks.
- Maintain simple documentation and proof of completion.
- Ensure the arrangement supports proper worker classification.
Why Proper Structure and Documentation Matter
This strategy depends heavily on proper structure and execution. If you treat the work as ongoing employment, you risk having your child or other family member classified as an employee or a 1099 independent contractor.
When done correctly, this approach efficiently shifts income, minimizes taxes, and keeps compliance simple.
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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