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Strategic Tax Benefits: Hiring Your Kids in the Family Business During Summer Break

As summer approaches, many business owners start to consider how their children might contribute to the family enterprise during the break. Beyond fostering valuable entrepreneurial skills, involving your kids in the family business can be a strategic tax planning opportunity that benefits both your business and your household.

Understanding the Tax Advantages

Employing your children isn’t just about giving them productive summer activities—it can also help you maximize your tax strategy. If you operate a sole proprietorship or a partnership where both parents are partners, reasonable wages paid to your qualifying child (must be under age 18) are exempt from Social Security and Medicare taxes (FICA), as well as Federal Unemployment Tax Act (FUTA) taxes. This creates a legitimate payroll expense, reducing your self-employment income and shifting earned income to your child, who is likely in a lower tax bracket.

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Best Practices for Compliant Hiring

  • Documentation Matters: Maintain timesheets, job descriptions, and pay your child through payroll, just as you would any employee.
  • Reasonable Compensation: Wages must reflect market rates for the work performed—review typical hourly rates for similar roles.
  • Age-Appropriate Duties: Assign tasks that suit their age and capability, such as filing, administrative support, basic bookkeeping, or helping with content creation for your website and social media channels.
  • Separate Bank Account: It’s best practice for your child to have their own bank account where direct deposits can be made, strengthening the argument that work and pay are legitimate.

When managed correctly, your child’s earnings may fall below the standard deduction ($13,850 for single filers in 2023), meaning they’ll pay little or no federal income tax on their summer wages.

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Added Educational Benefits

Beyond tax savings, family businesses that hire children have a unique opportunity to teach financial literacy, the fundamentals of entrepreneurship, and important workplace skills. It can be a foundational experience that shapes their work ethic and career aspirations.

Consult Your Accountant

There are nuances in employment law, fair labor standards, and tax code compliance to consider. Consulting an expert ensures your family business leverages every available advantage while staying compliant.

The summer break is more than just a pause from school—it’s an ideal time to integrate your child into the business and develop both your company and your family’s financial future. If you’re interested in personalized tax planning guidance, don’t hesitate to reach out.

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