Pay Your Children for Services They Perform For Your Business

December 5, 2013 by Aaron Scott Young

Introduce your kids to working in your family business by showing them the worthwhile opportunities that result in a job well done. They will have pride and ownership as contributing  to your household, and, oh that’s right, your company can write off their wages! As with anything,  you are required to meet a few guidelines in order for your children’s work to pass scrutiny from the IRS.

Make sure the salary the corporation is paying the children is reasonable for the job they are doing. If you already have an employee doing similar work, then use that as a guideline for what they should get paid. If you are creating a new position, then do a comparative study based on the type of work and the business you are in.

Entrepreneur.com posted a great article about hiring your kids which lists out some of the guidelines you should follow when hiring your kids to work for your corporation.

Children between 7 and 18 can earn their first $5,700 a year without owing federal tax. The main benefit that results from hiring your children is the ability to move money out of your corporation to your children who can then shelter most of that money income tax free. This ability presented by the IRS becomes even more important as the prospect of our children collecting Social Security becomes nonexistent.

Don’t turn your child’s work experience into their first IRS experience. Make sure you follow the guidelines presented by the IRS or check with your accounting professional.

More tax tips >