D. Rhodes, CPA, Writer and Editor
Watch our detailed video below for in-depth analysis of court cases, specific documentation requirements, and implementation strategies to ensure your family employment arrangement withstands IRS scrutiny.
Under IRS Publication 17 and IRS Regulations 26 U.S. Code § 6065, a properly structured income-shifting strategy of employing your children can significantly reduce your family's tax burden. When executed correctly, your business can deduct wages paid to your children while potentially shifting up to $13,850 (2024 standard deduction) per child into a 0% tax bracket.
However, recent court cases show the IRS closely scrutinizes family employment arrangements. In multiple instances, business owners have lost substantial deductions and faced penalties for improper documentation and unreasonable compensation claims.
Key Requirements for Success
Work must be legitimate, necessary, and business-related
Compensation must be reasonable for services performed
Documentation must be thorough and contemporaneous
Proper payroll procedures and tax forms are required
Business Structure Matters
The tax benefits vary based on your business structure:
Sole proprietorships and parent-only partnerships: No Social Security/Medicare tax on children's wages (under 18)
Corporations and LLCs taxed as corporations: Must withhold all payroll taxes
Modern Applications
Today's digital-native children can provide valuable services including:
Social media management
Basic data entry
Digital content creation
Technology support
Remember: Our ultimate goal is to help you save time and money, while building wealth and legacy.
The choice is yours, but the clock is ticking. Reach out today so we can help get you from where you're at, to where you want to be. Your move boss.
*This article provides general information, not individual tax advice. Tax situations vary; consult with a qualified tax professional, like myself, for advice specific to your circumstances.
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