What if one of your best tax-planning opportunities was already living under your roof?
For business owners with children, hiring your kids can be a powerful—and completely legitimate—tax strategy when structured correctly.
Instead of simply giving your children money from your after-tax income, your business may be able to employ them, deduct reasonable wages for legitimate work, and shift income to a child who may pay little or even zero federal income tax.
Then those earnings can potentially be used to start investing at an incredibly young age.
That's where a tax strategy can become a family wealth strategy.
Suppose your child legitimately works in your business.
Depending on their age and abilities, they might:
Instead of giving your child an allowance or spending money, you hire them as a legitimate employee and pay a reasonable wage for the work actually performed.
The business may receive a deduction for those wages.
Your child receives earned income.
And because your child may be in a much lower tax bracket than you, the result can potentially reduce the family's overall tax burden.
Here's where the 2026 numbers become particularly interesting.
The 2026 standard deduction for a single taxpayer is $16,100.
A child whose qualifying earned income is covered by the standard deduction—and who doesn't have other circumstances changing the calculation—could potentially owe zero federal income tax on those wages.
Think about the difference.
You earn the money.
You pay income tax on it.
Then you give what's left to your child.
Your child performs real work for your business.
Your business pays reasonable compensation.
The business may deduct the wages.
Your child reports the earned income and may owe little or no federal income tax.
The money stays within the family—but potentially with a much better tax result.
This is where the opportunity gets even more interesting.
Once your child has legitimate earned income, they may become eligible to contribute to an IRA, subject to the annual contribution limits and their earned income.
For 2026, the IRA contribution limit is $7,500.
For a child who is already paying little or no federal income tax, a Roth IRA can be particularly compelling.
Why?
Because the child may receive little benefit from taking a tax deduction today.
Instead, money contributed to a Roth IRA can potentially grow tax-free for decades, with qualified distributions eventually coming out tax-free.
Imagine starting that process at age 12, 13, 14 or 15 instead of age 30 or 40.
Time becomes the secret weapon.
Consider a hypothetical example.
If $7,500 were invested at age 13 and earned an average 8% annual return until age 65—with no additional contributions—that single investment could potentially grow to approximately $410,000.
That's from one contribution.
Of course, an 8% return isn't guaranteed, actual investment returns fluctuate, and taxes and Roth distribution rules must be considered.
But the illustration demonstrates something important:
Starting early can matter enormously.
Now imagine a child legitimately working in the family business for several years and consistently contributing part of those earnings toward long-term investments.
That's why we don't look at hiring your children as simply another deduction.
We look at the entire financial opportunity.
This is where planning becomes extremely important.
The tax treatment can differ depending on how your business is structured.
If a child under age 18 works for a parent's sole proprietorship, the child's wages can generally be exempt from Social Security and Medicare taxes.
Similar treatment may apply to a partnership where each partner is a parent of the child.
Wages paid to a parent's child under age 21 can also qualify for an exemption from federal unemployment tax under the applicable rules.
That can make the strategy particularly attractive for qualifying businesses.
If your business operates as an S corporation or C corporation, the special parent-child payroll-tax exemptions generally don't apply.
Why?
Because technically, the corporation—not Mom or Dad—is the employer.
That means Social Security, Medicare and potentially unemployment taxes can reduce some of the tax savings.
Does that automatically mean an S corporation owner shouldn't hire their child?
No.
It means you need to run the numbers.
The strategy may still produce meaningful benefits, but the calculation is different.
There's another consideration for certain business owners: the Section 199A Qualified Business Income deduction.
Wages paid to your child generally reduce the business's qualified business income, which can potentially reduce the QBI deduction.
For certain higher-income taxpayers subject to the W-2 wage limitation, however, additional W-2 wages can interact with the calculation differently.
Translation?
Don't evaluate one tax deduction in a vacuum.
Your entity structure, taxable income, payroll taxes, QBI deduction and overall financial situation need to be considered together.
That's the difference between finding a tax idea online and actually doing tax planning.
This is where business owners can get themselves into trouble.
Hiring your children is a legitimate tax-planning strategy.
Pretending to hire your children isn't.
Your child needs to perform actual services for the business.
Their compensation needs to be reasonable for the work performed.
And you need documentation.
Paying your 10-year-old $50,000 to take out the office garbage occasionally isn't aggressive tax planning.
It's an invitation to have a very interesting conversation with the IRS.
If you're going to employ your child, treat the arrangement like a legitimate employer-employee relationship.
Document the child's job responsibilities and what services are actually being performed.
Maintain contemporaneous time sheets showing when the child worked and for how long.
Establish a reasonable rate of compensation based on the type of work performed.
Run the compensation through the appropriate payroll system and complete required federal and state payroll filings.
Most importantly, actually pay the child and maintain a clear trail showing the money moving from the business to the child's account.
The goal isn't simply to create a tax deduction.
The goal is to create a tax deduction you can defend.
There's another important point parents sometimes overlook.
Once your business legitimately pays your child wages, that money belongs to the child.
This isn't supposed to be a paper transaction where the parent immediately takes the money back.
That's why this strategy works particularly well when the family already intends to help the child financially.
The earnings could potentially be used for the child's legitimate expenses, savings, investments, or Roth IRA contributions, depending on the family's circumstances and applicable rules.
Instead of simply transferring after-tax dollars from parent to child, you're creating an opportunity for the child to earn, save and invest.
There may also be a valuable side effect:
Your child starts learning how a business—and money—actually works.
Potentially.
The $16,100 standard deduction isn't a maximum salary.
It's simply an important 2026 federal income-tax threshold in this strategy.
A child earning more may still have planning opportunities.
For example, deductible traditional IRA contributions may potentially offset additional taxable earned income in appropriate circumstances.
But once you start increasing compensation, several questions become increasingly important:
Is the compensation reasonable?
How much work is actually being performed?
What taxes will the child owe?
What payroll taxes apply?
Would a Roth or traditional IRA make more sense?
How does the additional deduction affect the parent's taxes and QBI deduction?
At that point, the strategy needs to be modeled, not guessed.
Your tax return tells us what already happened.
Tax planning asks:
What can we do before the year ends to create a better financial result?
Hiring your children is only one example.
The real opportunity comes from coordinating decisions across your:
Business + Taxes + Investments + Retirement + Real Estate + Family Wealth
That's why Shore Tax & Financial Planning combines the perspective of a CPA and CFP® professional.
Saving taxes is important.
But saving $1 of tax only to make a poor $10 financial decision doesn't make you wealthier.
The objective is to make smarter decisions across your entire financial life.
For the right business owner, this can be an extremely valuable strategy.
But before putting your child on payroll, determine:
Is there legitimate work for them to perform?
Is their age appropriate for the work?
What is reasonable compensation?
How is your business taxed?
Will the parent-child payroll-tax exemptions apply?
How will the wages affect your QBI deduction?
Should your child fund a Roth IRA?
What documentation and payroll filings are required?
And most importantly:
Does the strategy improve your family's overall financial position?
That's the question tax planning should answer.
At Shore Tax & Financial Planning, we believe tax planning shouldn't end with finding another deduction.
We want to determine what happens to the dollars you save.
Because money unnecessarily lost to taxes can't be invested.
And money that isn't invested doesn't get the opportunity to compound.
If you're a business owner with children, there may be an opportunity sitting right in front of you.
Book a Free 15-Minute Consultation with Shore Tax & Financial Planning.
We'll help you determine whether hiring your children—or other proactive tax strategies—could help reduce your taxes while strengthening your family's long-term financial plan.