Thinking about bringing your child into the business? Many small business owners do — and it can be a win-win. Your child gets early exposure to real-world work, you get an extra set of hands, and there can even be tax advantages. But, if not done correctly, it can trigger red flags with the IRS and lead to denied deductions or penalties. Here's how to do it the right way.
✅ 10 Essential Tips for Hiring Your Children in Your Business
1. Hire Them for Real Work
They must perform legitimate tasks that help your business. Personal errands don’t count. Think: cleaning the shop, managing social media, or organizing files.
2. Comply with Employment Laws
Treat your child like any employee — get an EIN, have them complete a W-4 and I-9, and follow all onboarding procedures.
3. Follow Child Labor Laws
Age-appropriate tasks and hours are a must. Check federal and state labor laws to stay compliant.
4. Pay Real Wages
Pay by check or direct deposit. College tuition or meals don’t count as “wages.”
5. Make It a Reasonable Wage
Wages should reflect the market rate. Overpaying will raise IRS eyebrows.
6. Separate Household and Business Tasks
Only business-related tasks are deductible. Cleaning the office? ✅. Cleaning your home? ❌.
7. Withhold the Right Taxes
If your business is a sole proprietor or a partnership between parents, your child under 18 is exempt from Social Security and Medicare taxes. Otherwise, standard payroll taxes apply.
8. Keep Good Payroll Records
Hours worked, wages paid, taxes withheld — document it all.
9. Deposit Wages to Their Account
Establish a paper trail by using bank deposits, Roth IRAs, or 529 plans.
10. Help Them File a Tax Return
Regardless of age, your child may need to file. It can also lead to refunds and is great practice for financial responsibility.
👨👩👧 Bonus Tip: Create an employment agreement for your child just like you would for any other employee. It strengthens your documentation and shows the IRS you're serious about doing it right.
At Alto CPA Group, LLC, we help small business owners implement tax-smart strategies — like hiring your children — in full compliance with IRS rules. Contact us if you’d like guidance setting this up correctly, including payroll support, tax filings, and documentation.
