I'm Jamie — Profit Strategist and Financial Literacy Coach.

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How to Hire Your Kid In A Family Business: Busting Myths

July 13, 2023

Hiring your kids: a legit business expense.

As business owners, if you’ve wondered how to hire your kid but you’re not sure where to go for advice – we created this information for you.

We often encounter a variety of advice and tips on how best to manage and grow our ventures. 

While some of this advice is grounded in truth and experience, other pieces are founded on misconceptions and myths. 

Especially when it comes to the topic of hiring our own children in our businesses. 

Questions such as “Isn’t this illegal?” 

“Isn’t this just a tax loophole?” or 

“Will this affect their dependency status?” can lead to confusion and hesitation.

How to hire your child with confidence

But armed with accurate knowledge and effective tools like the “Hiring Your Kids Toolkit,” you can navigate past these myths. 

Find and see the real benefits that hiring your children can bring to your business and your family. 

In this blog, we will debunk some of the most common misconceptions and shed light on the genuine advantages and processes involved in hiring your kids.

Myth 1: Hiring Your Kids Is Illegal or They’re Too Young

You do need to pay your children reasonable wages. And it’s important to track services performed.

The first and most common myth we encounter is “It’s illegal to hire your own kids” or “My kids are too young to work.” 

This misunderstanding often arises from a mix-up with child labor laws and a lack of understanding about what constitutes “employment.” 

It’s essential to clarify that child labor laws are in place to protect kids from exploitation, not to prohibit them from all forms of work. 

Especially within a family-run business.

Child labor laws differ globally and even from state to state within the U.S. 

For instance, the Fair Labor Standards Act (FLSA) in the U.S provides certain exceptions for children employed in a business solely owned by their parents. 

These exceptions allow children of any age to engage in non-hazardous jobs without restrictions on working hours. 

However, it’s still crucial to abide by specific regulations when you employ your kids. 

These can relate to the type of work, working hours, and providing fair compensation. 

Moreover, it’s crucial to maintain a detailed record of their work, including the hours they put in and the tasks they perform. 

As long as these regulations are observed, hiring your kids can be a completely legal and advantageous practice.

Our “Hiring Your Kids Toolkit” provides comprehensive insights and guidance on legally employing your child in your business. 

All while adhering to all necessary regulations. 

This toolkit is an invaluable resource for navigating this sometimes complex legal terrain.

Myth 2: Hiring Your Kids Is Just A Tax Loophole

There is a tax strategy behind hiring your child.

Another widely spread myth is the idea that hiring your kids is merely a sly trick to exploit tax loopholes. 

Let’s clear this up: hiring your children isn’t a ‘loophole.’ 

Rather, it’s a lawful tax strategy that’s recognized and sanctioned by the Internal Revenue Service (IRS) and other international tax authorities.

When you employ your kids in your business, you’re essentially transferring income from your higher tax bracket to your child’s lower one. 

With the standard deduction for a dependent child being $13,850 for 2023, they can earn up to this amount without owing any tax. 

As the business owner, you can deduct their wages as a business expense, lowering your taxable income. 

Furthermore, earned income can be contributed to a Roth IRA, where it can grow tax-free, setting them up for a financially secure future.

While hiring your children offers legitimate tax benefits, it’s important to conduct the employment professionally. 

Your child should carry out real tasks that contribute to the business and should receive a fair wage for their work.

The “Hiring Your Kids Toolkit” provides straightforward, step-by-step guidance on implementing these strategies. 

It ensures that you meet all legal requirements while maximizing your tax benefits.

Myth 3: Hiring Your Kids Will Result in Losing Their Dependency Status

when it comes to hiring your child, it's important to remember that your role as parent comes first. Picture is of a cute kid that is maybe old enough to work looking sad because of this myth.

A frequent concern among parents is the belief that hiring their children will lead to them losing their dependency status on their tax return. 

Parents fear that by generating income, their children will no longer qualify as dependents, thus increasing the parents’ tax liability.

It’s important to dispel this myth. 

The truth is, hiring your children does not automatically disqualify them as dependents on your tax return. 

Dependency status for tax purposes is determined by several factors, such as age, relationship, support, and residency. 

As long as your child is under 19 (or under 24 if a full-time student) and lives with you for more than half the year, they can still be claimed as a dependent, regardless of how much they earn.

However, it’s crucial to understand that while your child can still be your dependent, their income might affect their own tax liability. 

The “Hiring Your Kids Toolkit” provides comprehensive details on how to maintain the delicate balance between hiring your children and optimizing your tax situation.

Myth 4: You Can’t Hire Your Kids and Get Tax Benefits If You Are a Corporation

Hiring your child is a smart business strategy if you want to save money on your taxes. Jamie Trull with her kiddos!

Now, this is an intriguing myth that seems quite convincing at first glance. 

It’s true that the tax benefits of hiring your kids are typically more accessible to sole proprietorships or LLCs (non-S Corps). 

As well as partnerships where both partners are parents of the child. 

However, that doesn’t mean corporations are left out in the cold.

Yes, there’s a workaround – it’s called a Family Management Company. 

This is a separate entity (typically a sole proprietorship) that you can establish to employ your children. 

You then contract this company for services with your corporation. 

This allows you to move money from a higher tax bracket (the corporation) to a lower one (the child’s income), all within the purview of IRS regulations.

The “Hiring Your Kids Toolkit” breaks down the process of setting up a Family Management Company in detail. 

The toolkit provides you with a step-by-step guide on how to legally and effectively employ your kids, even as a corporation, and reap the associated tax benefits.

Myth 6: Hiring Your Kids Is Too Complicated

A long roll of receipts. Your kids don't pay taxes like every other employee.

Perhaps the most prevalent myth about hiring your children is that it’s just too complicated. 

It’s true that there are rules to follow, paperwork to complete, and tax considerations to keep in mind. 

But that doesn’t mean it’s an insurmountable task.

The process can be streamlined and simplified with the right resources and guidance. 

And you guessed it! That’s precisely what the “Hiring Your Kids Toolkit” is designed to provide. 

It offers a comprehensive, step-by-step guide to the process. 

This means it comes complete with all the forms, checklists, and instructions you’ll need. Get ready to hire your kids legally, ethically, and efficiently.

Conclusion

Hiring your children can be an incredibly advantageous strategy for small business owners. 

Not only does it offer tangible financial benefits, but it also presents an invaluable opportunity to educate your children about work and money. 

However, it’s essential to understand the facts and debunk the myths surrounding this practice.

The “Hiring Your Kids Toolkit” is an excellent resource for parents looking to navigate this process successfully. 

It demystifies the process, breaks down the tax benefits, and provides practical advice and legal guidance every step of the way. 

Don’t let misinformation stand in the way of maximizing your tax benefits and setting your children up for future financial success. 

Get the toolkit, debunk the myths, and start leveraging the power of family in your business today https://jamietrull.com/kids.

Frequently Asked Questions (FAQs)

Accounting software, FAQ about the accounting or kids working in family business process.

What age can my child start working in my business?

There isn’t a hard-and-fast rule about the age at which a child can start working in a family business. 

The Fair Labor Standards Act (FLSA) stipulates that children must be at least 14 to do non-agricultural work, however exceptions exist for family businesses. The age they can start working largely depends on the nature of the work involved. Always ensure the work is safe and suitable for your child’s age and development.

My child started working for my business at 9 years old, doing age appropriate work and also modeling an acting for business videos and photos. There are lots of options – don’t be afraid to get creative! 

What kind of work can my child do in my business?

The type of work your child can do in your business depends on their age, skills, and interests. It’s important that the work is safe and appropriate for their age. For younger children, tasks might include office organization, cleaning, or simple filing. Older kids might take on roles related to digital marketing, website maintenance, or customer service.

Do I need to pay my child a ‘reasonable’ wage?

Yes, the IRS requires that you pay your child a ‘reasonable’ wage, which means a wage comparable to what you would pay a non-family employee for the same job. This is crucial for claiming the associated tax deductions.

How do I set up a Family Management Company?

Setting up a Family Management Company can be an effective way to hire your kids if you operate as a corporation. The specific steps can vary based on your state and situation. The “Hiring Your Kids Toolkit” provides a comprehensive guide to setting up a Family Management Company, making the process straightforward and manageable.

Is it legal to hire my kids and claim tax benefits?

Yes, it is completely legal to hire your children and claim tax benefits as long as you follow the IRS rules. Ensure your child does legitimate work. Make sure to pay them a reasonable wage and file the proper tax forms.

Can hiring my child impact their tax status?

Your child will need to file their tax return if they earn more than the standard deduction for a dependent. However, in most cases, hiring your child should not impact their dependency status on your own tax return, as long as their income doesn’t exceed half of their own support needs. Consult with a tax professional to understand the specifics based on your situation.

Remember, for detailed step-by-step guidance on how to legally and effectively employ your children in your business, consider the “Hiring Your Kids Toolkit”. We designed this resource to simplify the process.

And guide you through the paperwork to help you make the most of the associated tax benefits.

The following is a direct transcript from the video that has not been edited. Please excuse any grammatical errors. 

Hello. Hello everyone. Jamie Trull here, your favorite C P A and profit strategist. And I’m really excited for this specific topic. This is a topic that comes up a lot and it is around hiring your kids. And specifically today I wanna talk about the myths of hiring your kids and really try to be able to separate fact from fiction. I have been on the internet,

I’ve been on social media, I’ve seen videos about this on TikTok and things like that. And holy moly, there’s so much misinformation. I see it in videos, I see it in the comments to videos. And so I wanna give you a resource to really be able to combat some of those typical myths that are out there and actually show you the support for the actual truth of the matter.

So let’s jump on in and talk about some of the myths around hiring your kids in your business. The first myth is that it is illegal to hire your child if they are under 14 or 16, depending on who you talk to. And that is absolutely not true. If you are a business owner, you can actually hire your kid at any age.

And that is because you are exempt from federal child labor laws. So the Ffl, s A, the Ferret Labor Standards Act is typically what people point to, to say it is legal to employ a child under the age of 14. However, there is an exemption for family businesses. So you can see here really closely on the US Department of Labor website that it does say the Ffl s A provides for certain exemptions.

What are the tax benefits of making an S corp Election
Many business overs choose an s corp when they determine they can pay a lower self employment tax amount.

youth younger than 16 years of age, working in non-ag agricultural employment in a business solely owned by their parents or by persons standing in place of their parents. So if they’re being raised by grandparents, let’s say, may work any time of day and for any number of hours. So the normal Ffl s a rules around child labor do not apply if the business is wholly owned by the parents.

Now, I just find this funny, so I’m gonna point it out. The other exemptions other than just the exemption for a family business. But the other exemption to the rules around how old you have to be to work and what type of work you can be doing are the ones listed here, which are really interesting. You can be an actor or a performer at any age.

You can be a newspaper delivery kid, which I guess those make sense. But the one that makes me laugh a little bit is just how specific this one is, which is that you can work at home making reads composed of natural holly, pine, cedar, or other evergreens. That is one of the few exemptions, exemptions that is specifically spelled out,

which I find really interesting. But maybe that’s just me. Now, the number two myth that I hear all the time is that, okay, well if I employ my kids to work for me, they’re gonna have to pay taxes anyway. And actually that’s not necessarily true if you do it the right way. Now, there are instances where baby, if you don’t go through all the steps to set this up properly,

that you may have some taxes that your child would have to pay. But in general, if you do this thoughtfully and have the resources that you need to set it up correctly, your child may not have to pay any taxes at all, especially if they are under 18. And if they’re under 21, they’re only gonna have to pay potentially a little bit of tax.

So the way this works is that if your child makes under $13,850, and that is the 2023 standard deduction amount, if they make less than that in a year, then they will not have any federal income taxes that they would have to pay. And likely probably no state income taxes as well. But that’s something that would be dependent on the state. Now,

of course, that state or deduction amount changes every single year. So you’ll wanna check what it is, but usually it’s gonna go up, it’s not gonna go down. So generally, if you’re paying them more than $14,000 a year, they are not going to have any income taxes that they would need to pay on that money. This is great because you,

as the business owner, are essentially shifting that money into a lower tax bracket, you probably have more than a 0% rate on profit in your business. So if you are shifting it to your child, they won’t have those income taxes and you get to take that deduction. Now, you might be thinking, what about social security, Medicare, unemployment taxes?

Don’t they still have to pay those? Well, my friend, you get a gold star just for asking that question, but I’m gonna show you where the IRS website actually says that no, in a lot of cases, they don’t have to pay any of that. So here you can see on the IRS website, I always like to go to the actual source,

not somebody who’s interpreting it. It says, if the business is a parent’s sole proprietorship or a partnership in which each partner is a parent for the child, i e, all of the owners are parents of the child. Payment for the services of a child are subject to income tax withholding regardless of age. But remember, if it’s under the standard Deion,

there will be a 0% tax rate. So there will be nothing there. Payments for this service of a child under age, age 18, are not subject to Social Security and Medicare taxes. That’s fica. That’s a savings of 15.3%. So again, that is taxes you likely have to pay as a business owner, but if you pay them the money,

they won’t have to pay that. If a child is 18 years or older, these payments for the services of a child are subject to Social Security and Medicare, but they are not subject to federal unemployment taxes if they’re under 21. So there’s a little bit of a change if you’re between 18 and 21 years old.

So one of the other myths that I hear all the time is this is just gonna get you in trouble. This is just a tax loophole and the IRS is on the lookout for this. You’re more likely to get audited and it’s gonna be disallowed. Well, I just read you the actual rules from the IRS website. The I R S knows about this and are completely fine with it,

as does the Department of Labor. So the key, however, is they really do need to be employed. You cannot just say they’re employed, you need to employ them. You need to document it. Well. So as long as you have well-documented records and again, are employing them the way that you need to and paying them in the right way,

then this is absolutely totally fine from the standpoint of the IRS and the Department of Labor. Now, myth number four that I hear is if I employ my child, then they’re gonna lose their dependency status. I’m not gonna be able to claim them as a dependent on my tax return. Actually, that’s not true. So the fact of the matter is,

it doesn’t matter whether you’re paying them or not paying them in your business. You can claim them as a dependent as long as you are providing more than 50% support to them. So more than likely, when we talk about what it takes to survive, if you’re paying them $12,000 a year, or heck even $20,000 a year, you probably can still say that you are providing most of the money for them to survive in terms of their housing,

their clothing, their food, right? A lot of that is still probably coming from you. So the real determining factor there isn’t even necessarily whether they’re making income or not, it’s who is providing for the majority of their needs. Now, another myth that I see a lot, and this one I take to heart, I have a lot of thoughts on this,

but a lot of people may think that it is unethical to hire your child. As a person who has hired my nine year old, I do not believe that to be the case. And in fact, I think it’s actually been a really good thing for him and a really good thing for our relationship. Now, all of that said, of course,

I don’t advocate for hiring a young child, working, you know, a lot of manual labor or a lot of hours in a week. I think this is best done to hire a child in some of their free time outside of school, maybe during the summer, give them some responsibility, give them some real actual experience, managing money on their own,

and it allows for a lot of those conversations to happen. So my son has a bank account. Now he manages everything in his green light account. If you’re interested in Greenlight, definitely check out my link, Jamie Trull dot com slash greenlight. But he can see, he can actually invest through the app. He can set spending and saving goals, and I pay him directly from my business into hi this bank account.

And it has been such a fabulous thing for him to have and a bonding experience for the two of us. And he is learned a lot about what I do. So again, as long as the working conditions are appropriate for the age, we’re not talking about doing this because we are trying to exploit children or not pay them enough. In fact, most of the time when people are trying to employ this as a tax strategy,

they probably wanna justify the highest salary they can possibly justify because it allows for a higher tax savings, right? So we’re not talking about trying to, you know, pay very low wages and get cheap labor from children. That is not the purpose of what I talk about here. That happens absolutely in the world. That is not what we’re talking about when we talk about the tax advantages of hiring your children and why it can be a really great thing to do for your business and for them.

Now, another popular myth that I hear that actually has some validity to it, but there are ways around it, is the fact that you can’t hire your child to work for your business and get the tax benefits if you own a corporation. Now, that’s not necessarily true. It is true that you can’t get the same tax benefits if you are to hire them directly through say,

an S-corporation or a C corporation, because remember when we read that statement on the IRS website, it said that FICA taxes and unemployment taxes didn’t have to be paid as long as the business was wholly owned by a parent and that it was a sole proprietorship, which also includes an L L C that is taxed as a sole proprietorship. But if you’re an or a C corporation,

then it gets a little bit more complicated, but it is definitely still doable. And it just requires setting up a family management company that will essentially be the one that is employing your child, and then they ultimately invoice your main corporation. You can do this as well if you have other partners in your business that are non-parents, right? Because that was another stipulation that all partners had to be parents.

If you have an S-corporation or a C corporation, or if you have partners that are not parents of the child, there is still a way to be able to employ them and get the full tax benefits that you would otherwise, it’s just a slight bit more tricky. So if I have convinced you, if all of this has helped for you to say, okay, all right, maybe this is really worth looking at, then I want you to go check out this brand new program that we are releasing literally right now. So if you go to https://jamietrull.com/kids for Hire Your Kids, you’re gonna be able to see our Hiring Your Kids Toolkit. And this is going to have literally everything that you need in order to be able to hire your kids.

So it is going to have all the guides that you need. All the checklists that you need, video lessons to help walk you through it. And also it’s going to have the actual logs that you can use. To track and keep the documentation that you are gonna need. In case you are ever audited for any reason. You have it ready to go to prove why you took the deduction.

It’s also going to help you figure out how to actually go about paying your kid. What do you need to do? What are the steps to do that? How do you get payroll set up for them? And we’re gonna include the contracts that you need in order to employ your kids. And if you are needing to set up a family management company,

we have a guide for that and a contract for that. So we have literally everything that you need from A to Z to be able to hire your kids. Do it the right way, get the best tax benefits possible, and you can grab it now. Okay, so before we finish this video on hiring your kids, we had to have our special guest.

If anybody saw the video that came out last week, you already know who this is, but introduce yourself real quick. Miles, who are you? Miles, right? But like, who are you? Miles, you are my child, right? Yeah. Yes, yes. How old are you? Nine. Nine. And how do you feel about working with mom this summer?

I’ve hired you for the summer for a couple hours a week to do some work with me. And you know, what are you thinking about that don’t show? Are you excited about it? Well, what are you gonna be doing? I’m gonna teach people about money. You’re gonna teach people about money. You’re gonna be part of my YouTube channel and on my social media and take some pictures and do some,

do some work. Miles also has been l learning Canva, so he can do some graphic design work. Yeah. And what are you most excited about with working with Mommy this summer? I’m most excited about teaching people about money and making money yourself. Maybe a little. Maybe a little. So again, I’m so excited about this. Definitely check it out.

https://jamietrull.com/kids  Right now we have some special offers going on, so definitely make sure to check that out. And happy hiring.

I'm Jamie — Profit Strategist and Financial Literacy Coach.

tell me more...

Reading suggestions

Affordable Tech

Profit First: My Love/Hate Relationship

Hobby Loss Rule - Side Hustlers Beware