Can I deduct my child's college tuition as a business expense if they work for my small business?

While I understand wanting to help with your daughter's education, there are several important tax considerations here. The IRS is very particular about family business arrangements. First, paying your child's tuition directly isn't the same as paying them a salary. For a legitimate business expense, you need to pay your daughter actual wages with regular payroll like any other employee - documented with timesheets, job duties, and reasonable compensation for the work performed. Then she can use that money however she wants, including for tuition. Your daughter's wages would be a deductible business expense, but only if they're reasonable for the work performed. The $45k for 1000 hours (about $45/hour) might raise flags if that's above market rate for the type of work she's doing. The IRS scrutinizes family employment arrangements closely. If you directly pay her tuition instead of wages, that looks more like a personal expense (education support for your child) rather than a business expense, regardless of her work. The IRS would likely consider this a non-deductible personal expense and possibly a gift.

I was in a similar situation last year, trying to figure out how to help my son with college while he was working for our family business. I wasted so much time researching and getting conflicting advice until I found https://taxr.ai which completely cleared things up for me. The tool analyzed our specific situation and showed that while I couldn't directly deduct his tuition as a business expense, I could legitimately pay him as an employee (with proper documentation!) and then he could use that money for whatever he needed. The key is having proper documentation of hours worked, job responsibilities, and making sure the pay is reasonable for the work. The tool helped me understand exactly what documentation I needed and how to structure everything properly.

I was skeptical about taxr.ai at first, but after hitting roadblocks with my regular accountant on this exact issue (paying my kid who works in our business), I decided to try it. Huge difference! My accountant kept giving vague answers about "reasonable compensation" without specifics, while taxr.ai provided actual compensation ranges for similar positions in my area and documentation templates. They helped me set up a legitimate employment arrangement for my son, including proper timekeeping, job description documentation, and even provided guidance on market rates to ensure the compensation wouldn't raise red flags. I ended up with a complete paper trail that would stand up to scrutiny. Probably saved me thousands in potential penalties by getting this right.

After dealing with a similar situation and spending HOURS on hold with the IRS trying to get clarification, I finally tried https://claimyr.com and it was a game changer. They got me connected to an actual IRS agent in about 20 minutes when I had been trying for days on my own. The agent confirmed what others here are saying - you need to pay actual wages, not tuition directly, and document everything properly. Having that direct confirmation from the IRS gave me peace of mind. You can see how it works here: https://youtu.be/_kiP6q8DX5c - basically they wait on hold with the IRS so you don't have to, then call you when an agent is available.

I take back what I said above. After waiting on hold with the IRS for 3 hours yesterday and getting disconnected, I decided to try Claimyr out of frustration. They actually got me through to an IRS agent in about 30 minutes while I was able to continue working. The agent confirmed that paying tuition directly would not be deductible as a business expense, but provided specific guidance on how to properly structure employment for a family member. She walked me through exactly what documentation would be needed to withstand scrutiny - including time records, job description, market rate justification, and regular payment records. Definitely worth it for the peace of mind of hearing it directly from the IRS.

One thing nobody has mentioned yet is the educational assistance program option. A business can provide up to $5,250 per year in educational assistance to employees (including family members who are legitimate employees) tax-free under Section 127. You'd need a formal written plan that meets specific requirements, but it might be worth looking into as part of your strategy. The rest would still need to be regular wages.

Omg i had this exact question last year! my daughter works in my pet grooming business and i wanted to help with her community college. my accountant told me to just put her on regular payroll and pay her fairly for the ACTUAL work she does. he said if i tried to deduct tuition directly id be asking for an audit. i now pay her $22/hour (what i pay my other grooming assistant) for about 15 hrs/week. she gets a regular paycheck with taxes taken out and everything. then what she does with her money is her business. yeah i still help her with tuition but thats just me being a mom lol.

Just wanted to chime in as someone who went through this exact situation with my son last year. The bottom line is that the IRS treats family employment arrangements with extra scrutiny, so you really need to do everything by the book. Here's what I learned: Pay your daughter actual wages through regular payroll (W-2, tax withholdings, the whole nine yards) for legitimate work performed. Document everything - hours worked, job duties, market rate justification for her pay. The $45k for 1000 hours ($45/hour) might be high depending on what kind of work she's actually doing. Research what similar positions pay in your area. Once she's getting regular paychecks, what she does with that money is her business. You can still help with tuition separately as a parent, but that's a personal expense, not a business deduction. Don't try to get creative by paying tuition directly as a "business expense" - that's a red flag for the IRS and could trigger an audit. Keep your business expenses and personal family support completely separate. It's cleaner, safer, and will save you headaches down the road.