Hiring Your Kids: A Tax-Saving Strategy for Small Business Owners

You’re already spending thousands on your kids every year. School supplies, sports fees, groceries, vacations, the endless parade of stuff they need.

What if I told you that you could turn all of that into a tax-deductible business expense while simultaneously building your kids’ retirement accounts. Completely legally?

Not a trick. Not a gray area. Just the tax code, used the way it was designed.

If you own a business and you have kids, you’re sitting on one of the cleanest tax strategies in the playbook. And if you’re not using it, you’re leaving thousands of dollars on the table every year.

Let me show you how this works and why you should’ve started yesterday.

The Strategy: Hire Your Kids

Here’s the framework: You can hire your children to work in your business, pay them a legitimate wage, deduct that wage as a business expense, and if they’re under 18, they pay zero income tax on it.

Your business gets the deduction. Your kids get tax-free income. And you get to use that money for things you were already spending on them anyway.

It’s not a loophole. It’s IRC Section 3121(b)(3)(A), and it’s been sitting there waiting for you to use it.

Here’s the current limit: $15,500 per child, per year, completely tax-free (as long as they’re 17 or under).

You can hire multiple kids. You can do this every single year from the time they’re 5 until they’re adults. And if you structure it right, you’re not just saving on taxes. You’re building generational wealth.

The Math That Changes Everything

Let’s say you have three kids: ages 7, 10, and 14.

You hire all three to do legitimate work for your business. You pay them:

• Kid 1 (age 7): $9,400
• Kid 2 (age 10): $12,600
• Kid 3 (age 14): $14,800

Total paid: $36,800

For your business: That’s a $36,800 tax deduction. If you’re in the 35% bracket, you just saved roughly $12,880 in taxes.

For your kids: They received that money completely tax-free. No income tax. No payroll tax (if you’re a sole prop or partnership and they’re under 18). Zero.

Now here’s where it gets powerful: You take half of each kid’s earnings and put it into a Roth IRA. The other half? That covers their share of family expenses: school fees, sports, groceries, vacations, whatever.

You were spending that money anyway. Now you’re just doing it with pre-tax dollars while building your kids’ financial futures.

The Generational Wealth Play

Let’s run the long-term numbers.

You start hiring your 7-year-old and paying them $14,000 per year. You put $7,000 of that into a Roth IRA every single year.

From age 7 to age 60, that Roth compounds at an average of 11% per year (the S&P 500’s historical average over the past decade).

By age 60, that Roth is worth over $30 million. Tax-free.

You didn’t give them $30 million. You gave them $7,000 per year while your business deducted it. The rest? That’s just compounding interest doing what it does when you leave it alone and don’t let the government take a cut.

Long-term compounding + zero taxation = generational wealth.

This is how you set your kids up for life without waiting until you die to pass down money. You’re building their wealth now, while getting tax benefits now, using money you were already spending.

What Jobs Can Kids Actually Do?

Here’s where people get stuck. “My kid is 6. What can they possibly do for my business?”

More than you think. The IRS doesn’t care about age. It cares about legitimate work. Here are real examples:

Ages 5–10:

• Clean the office or company car
• Organize files, mail, or supplies
• Shred documents
• Help with social media content (modeling products, being in photos/videos)
• Simple data entry or envelope stuffing

Ages 11–14:

• Run errands (office supply runs, deliveries)
• Basic bookkeeping or filing
• Social media management
• Answer phones or emails
• Help at events or trade shows

Ages 15–17:

• Actual skilled work (design, coding, writing, photography)
• Client communication
• Administrative tasks
• Driving for business purposes (airport runs, deliveries)

The key? It has to be real work. Don’t hire your 8-year-old for $15,000 and have them do nothing. That’s a fast track to an audit you’ll lose.

But if your kid is legitimately cleaning your office, organizing files, helping with your social media, or doing tasks you’d otherwise pay someone else to do? That’s completely defensible.

How to Do This Without Screwing It Up

This strategy is bulletproof when done correctly. Here’s the checklist:

1. Keep It Reasonable

Don’t pay all three kids exactly $15,500. That screams “I Googled the limit and maxed it out without thinking.”

Pay them based on the actual work they’re doing. If one kid worked more than the others, pay them more. Keep it real.

2. Document the Work

Create a simple employment contract for each child that outlines:

• Their job responsibilities
• Their hourly rate or annual salary
• How often they’ll be paid

Keep time logs if they’re hourly. Take photos or notes showing the work they’re doing. If you ever get audited, you need to prove this was real.

3. Pay Them Regularly

Don’t wait until December and write one $14,000 check. That looks suspicious.
Pay your kids on the same schedule you pay other employees: weekly, bi-weekly, monthly, whatever. Just keep it consistent.

4. Open a Bank Account in Their Name

The money needs to go somewhere. Open a checking account for each child and deposit their paychecks there.

From that account, you can:

• Transfer $7,000 to their Roth IRA
• Use the rest for their expenses (school, sports, clothes, family vacations)

The IRS doesn’t care how your kids spend their money once they’ve earned it. That’s between you and them.

5. Handle the Tax Side Correctly

If your kids are under 18 and you’re a sole proprietor or partnership, you don’t have to withhold Social Security or Medicare taxes. That’s huge! It means the full amount is tax-free to them.

If your business is an S-corp or C-corp, you’ll need to run payroll properly and withhold taxes. Work with your CPA on this.

And yes, if you pay them over $600, you’ll need to issue a W-2 (or 1099 if they’re contractors). But even though they receive a W-2, they still don’t pay income tax on the first $15,500 if they’re under 18.

The Wealth-Building Blueprint

Here’s how the best version of this strategy works:

Step 1: Hire your kids. Pay them $12,000–$15,000 per year for legitimate work.

Step 2: Deposit half into a Roth IRA ($6,000–$7,000).

Step 3: Use the other half for expenses you were already covering—school, sports, travel, whatever.

Step 4: Let the Roth compound for 50+ years.

Result: Your business saved thousands in taxes. Your kids built million-dollar retirement accounts. And you funded their childhood expenses with pre-tax dollars.

This isn’t theoretical. This is what wealthy families have been doing for decades. The only difference is they have CPAs and advisors who proactively tell them to do it.

Now you know. So what are you going to do about it?

Why Most People Don’t Do This

Three reasons:

1. They don’t know it exists. Most CPAs are in compliance mode, not strategy mode. They’ll file your return correctly, but they won’t proactively tell you about opportunities like this.
2. They think it’s risky. It’s not. It’s in the tax code. Millions of business owners do this every year without issue. The risk is doing it wrong—not doing it at all.
3. They overthink it. You don’t need a complicated structure or expensive advisors. You just need a simple employment contract, consistent pay cycles, and documentation of the work.

That’s it. One hour of setup. Autopilot from there.

The Bottom Line

You’re already spending money on your kids. You’re already running a business that could use help. Even if that help is just cleaning the office or organizing files.
Why not structure it so you get a tax deduction, your kids get tax-free income, and you build their financial future at the same time?

Hiring your kids is one of the cleanest, highest-ROI tax strategies available to business owners. And if you’re not doing it, you’re playing the wealth game on hard mode.

So here’s your action plan:

✅ Sit down this week and list out legitimate tasks your kids can do
✅ Create a simple employment contract
✅ Set up bank accounts for each child
✅ Open Roth IRAs and start funding them with $6,000–$7,000 per year
✅ Put your kids on a regular pay schedule
✅ Document everything

You don’t need permission. You don’t need a complicated setup. You just need to start.

Because every year you wait is another $15,000 in tax savings you’re leaving on the table—and another year of compounding interest your kids aren’t getting.

If you’re not doing this by Q1, you’re playing the game on hard mode.

And the game is hard enough already.