Hire Your Kids

If you own your own business, and you're tired of your kids asking you for money, you should consider hiring them and make them earn it! It can be a win/win for both of you. You’ll get a tax deduction for the money you pay them, and they can get tax-free spending money, or they can save it for college in a ROTH IRA or 529 account. They can earn up to $12,550 for 2021 ($12,400 for 2020) without having to pay income tax, and if they are under 18 there's no FICA taxes payable.

A Few Tips on Hiring Your Kids

• They have to be capable of doing actual work for your business. For example, you can't hire your 3 year old to do your filing. In general, children should probably be older than 7 if you’re going to hire them to do things like office tasks, but it really depends on the specific situation and the work they are performing for you.

• They have to do work related to your business. You can't hire your kids to do household chores or babysit, the tasks they are doing have to be directly related to your business.

• They have to be a real employee. They will need to track their time on a timesheet so you have records to support what you pay them.

• You need to pay them reasonable compensation. You can't pay them $100/hour to do your filing.

• You need to ACTUALLY pay them. It would be best to cut them a check from your business account so there is a formal trail of the transaction. As a bonus, they can deposit the money into a ROTH IRA or 529 account to start saving for retirement or college.

• You need to comply with legal requirements. You should have them complete a W-4, I-9, etc. just like any other employee.

If you follow the rules, hiring your kids can give your business a BIG tax benefit, and teach your kids some valuable lessons about working at the same time.