How to Hire Your Kids and Legally Shift Income Tax-Free

If you’re a business owner or high earner looking to reduce taxes and build generational wealth, one of the most overlooked strategies is also one of the simplest: hire your children.

Under current tax laws, you can pay your kids through your business, deduct their wages as a business expense, and potentially shift income into their lower or zero tax bracket. It’s completely legal — when done properly — and it can save you thousands every year.

Why This Strategy Works

The IRS allows children under 18 to earn up to the standard deduction amount tax-free. In 2024, that’s $14,600. If your child earns less than this amount, they owe no federal income tax — and depending on your business structure, you may even avoid payroll taxes too.

Here’s what that means for you:

• Your business deducts the wages (just like any employee).

• Your child pays zero income tax.

• You effectively shift income from your high tax bracket to their 0% bracket.

It’s a win-win — and a great teaching opportunity.

Practical Example

Imagine your business earns $250,000 and you’re in the 32% federal tax bracket. You hire your 15-year-old daughter to manage your social media content and help with administrative work, and you pay her $12,000 for the year.

• Your business deducts the $12,000 as a wage expense.

• That saves you $12,000 × 32% = $3,840 in federal taxes.

• Your daughter pays $0 in income tax if her income stays under $14,600.

• You can then help her open a Roth IRA, 529 plan, or teach her to invest.

What Can They Do?

The IRS requires that your child be doing legitimate, age-appropriate work that directly supports your business. Examples include:

• Editing videos or managing your social media accounts

• Filing, scanning, or shredding documents

• Packing and mailing client gifts or marketing materials

• Acting in marketing photos or brand videos

• Helping with website uploads or online listings

Their pay must be reasonable for the work performed — you can’t pay your 6-year-old $10,000 to “test video games.”

How to Do It Right

To keep this strategy audit-proof, follow these key steps:

1. Track hours and duties with a simple timesheet or task log.

2. Pay them through your business checking account, not cash.

3. Issue a W-2 at the end of the year if they earn more than $600.

4. Set up a custodial Roth IRA to invest their earnings tax-free for decades.

If your business is a sole proprietorship or LLC taxed as a sole prop, you don’t even need to withhold payroll taxes for kids under 18. But if your business is an S Corp or C Corp, payroll taxes still apply.

Long-Term Benefits

This strategy isn’t just about saving taxes — it’s about building lifelong financial habits. Your kids can start saving early, learn the value of work, and watch their money grow through compound interest.

Hiring your kids lets you move money from your business to your family, legally and efficiently — and it creates financial opportunities for them from day one.

Final Thoughts

This is one of the easiest, most impactful tax strategies for business owners. You keep more of your income, your kids start building wealth early, and you gain a legitimate deduction that benefits your whole household.

Want help setting up the payroll, job descriptions, and tax filings?

Book a free strategy call — we’ll walk you through it step by step.