Employ your child in your business and save on taxes LEGALLY and ETHICALLY!

Employing your children could be a great way to shift income from your high tax bracket to your children “tax free” bracket. This is how the strategy works:

1. In your proprietorship, your children aged 17 or under are exempt from payroll taxes. This break applies equally to single-member LLCs treated as sole proprietorships for federal tax purposes and to husband-wife LLCs treated as husband-wife partnerships for federal tax purposes.

 2. You can deduct the child's wages as a business expense, which would lower both your income tax and self-employment tax bills. To do this LEGALLY and ETHICALLY, your child still needs to be paid a REASONABLE rate. If your child is paid by the hour, you still want to track those hours and ideally you would file payroll reports as evidence of a valid business transaction.

 3. If your kid earns under the standard deduction ($15,000 in 2025), he/she does not need to file a tax return, which means this would be tax-free income to your child.

 4. Your child can use the wages paid by your business to fund annual Roth IRA contributions. If your child is aged 8-17, there are several ways they could work in your business and earn up to the IRA contribution limit (~$7,000 in 2025).

Reach out if you want to learn more about this strategy and book an appointment with us at www.lobecpa.com.