Kids Helping Out in Your Family Business? You Can Pay Them Legally—and Save on Taxes!
- Sophia Yu
- Aug 12
- 2 min read
Updated: Aug 14
If your children help out in your business—filing paperwork, packaging orders, updating social media, or even cleaning up—you may be missing out on one of the smartest tax strategies available to small business owners: putting your kids on payroll.
Yes, it’s legal. Yes, it’s IRS-approved. And yes, it can significantly reduce your tax bill while teaching your kids real-world responsibility.
Why Pay Your Kids Through Your Business?
1. Reduce Your Taxable Income
When you pay your kids a reasonable wage for legitimate work, that amount becomes a deductible business expense—just like paying any other employee.
Let’s say your 13-year-old helps with packaging and you pay them $6,000 for the year. That $6,000 reduces your business income—and you may avoid paying tax on it entirely (more on that below).
2. They Pay Little or No Tax
As of 2025, children can earn up to $14,600 in income without paying federal income tax, thanks to the standard deduction. So their pay may be completely tax-free.
If they’re under 18 and you operate as a sole proprietorship or partnership with both parents, you also don’t have to withhold Social Security or Medicare taxes. That means even more tax savings for the family.
3. Fund Roth IRAs or College Savings
Kids with earned income can contribute to a Roth IRA—an incredible way to build tax-free wealth early. You can also help them save for college or future goals.
What Kind of Work Can They Do?
The work must be age-appropriate, real, and necessary for the business. Examples include:
Filing, shredding, and organizing paperwork
Packing products or restocking shelves
Posting on social media
Cleaning the office
Updating inventory
Entering basic data into spreadsheets
Make sure the job is legitimate and that you’d be willing to hire someone else for the same work if your child weren’t available.
Best Practices to Keep It Legal
Track Hours: Keep time sheets just like with any other employee.
Pay Reasonable Wages: The pay must be in line with what you'd pay someone else for the same work.
Cut Real Paychecks: Ideally, use payroll software or services to document payments.
Issue a W-2: If required by your business structure, provide the appropriate tax forms at year-end.
Example: The Smith Family
The Smiths run a small bakery as a sole proprietorship. Their 15-year-old daughter helps every weekend—managing inventory and packing boxes. They pay her $7,500 per year.
That $7,500 is a business deduction, lowering the Smiths’ taxable income.
Their daughter pays no federal tax—her income is under the standard deduction.
The family shifts income from their high tax bracket to their daughter’s 0% bracket—legally.
The Bottom Line
Paying your kids through your business is a win-win: they learn the value of work and money, and you reduce your overall tax liability.
Want to Set This Up the Right Way?
We’ve helped dozens of business owners legally add their kids to payroll while maximizing tax savings. If you’d like to explore how this could work for your family, schedule a 15-minute free consultation with one of our expert CPAs.
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