How Paying Your Child Through Your Business Can Save You Money on Taxes
Smart strategies for business-owning families
If you own a business and have children, you might be missing out on a powerful, legal tax-saving strategy hiding in plain sight: putting your child on the payroll. Instead of letting the IRS take more than its share, this strategy allows you to shift income within your family and build wealth for the next generation—all while teaching your child the value of work.
The 2024 IRS standard deduction for single filers is $14,600, meaning your child could pay zero federal income tax if they earn less than this amount.
A child who earns $10,000 per year starting at age 8, and invests it with a 7% annual return, could accumulate $2.9 million by retirement age (age 63).
Children under 18 working for sole proprietors or single-member LLCs are exempt from payroll taxes—a rare and valuable tax loophole.
How It Works
Here’s how smart business owners are using this strategy to reduce their tax liability and keep more wealth in the family:
Your Business Gets a Tax Deduction
When your child performs legitimate, age-appropriate work (think: office filing, social media help, event setup), the wages you pay them become a deductible business expense—reducing your taxable income.
They May Owe Zero Federal Income Tax
If your child earns less than the standard deduction and has no other income, they owe nothing in federal income tax. That’s a win-win:
You deduct the wages.
They owe no taxes.
The IRS gets less of your money.
No Payroll Taxes for Young Workers
If you operate as a sole proprietorship or single-member LLC, and your child is under 18, you don’t pay Social Security, Medicare, or FUTA taxes on their wages. That’s extra savings on top of the deduction.
Income Shifting = Lower Tax Brackets
Instead of being taxed at your higher rate, income paid to your child may be taxed at a 0% rate. This “income splitting” keeps more money in the family—legally.
They Learn About Money & Save for the Future
With earned income, your child can open a Roth IRA. Invested early, even modest contributions can compound into hundreds of thousands—or millions—by retirement.
Use Their Wages to Cover Everyday Costs
Why pay for your child’s sports gear, clothes, or school supplies with after-tax dollars? Pay them a fair wage, and let them buy those items themselves. It’s still your money—just more tax-efficient.
