Know the Rules for Hiring Your Kids to Work in Your Small Business

Hiring your children to work in your small business can be a smart move for both family and finances. Not only does it teach them the value of a hard-earned dollar, but their compensation may also be tax deductible, reducing your overall business taxable income.

Here are some important things to consider:

• Their compensation must be reasonable and in line with their age, education, and experience. If your child’s title is “manager,” ensure they are genuinely performing managerial duties.
• Avoid overpaying for underqualified tasks. The IRS may disallow deductions if, for example, you pay executive-level wages for sweeping floors.

When done correctly, employing your kids can be a great way to transfer wealth within your family while teaching responsibility and reducing your business's tax liability. Be sure to consult a qualified accounting professional or certified bookkeeper for IRS compliance and payroll setup.