Can I use my children's bank accounts to pay for their extracurricular activities or reimburse myself for these expenses?

I'm a small business owner and I've been paying my kids for legitimate work they do for my company. Each child makes about $1,150 per month, and I deposit their earnings into their individual bank accounts that I set up for them. I'm wondering about the proper way to handle their expenses. Am I allowed to use the money in their bank accounts to either directly pay for their activities or reimburse myself when I cover these costs? For example, my daughter is really into dance classes that cost around $500 monthly - can I pay that directly from her account (or reimburse myself if I already paid)? Similarly, if my son wants to grab Chipotle after school for about $12, can I use his account to pay for that or reimburse myself if I fronted the money? I want to make sure I'm handling this correctly from a tax perspective since they're earning money from my business. Does anyone know the proper way to manage these kinds of expenses?

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18 comments

Noah huntAce420

•8M

This is a great question about family business finances! When you pay your children for legitimate work in your business, that money legally belongs to them once it's paid out as wages. Since your children are minors (I'm assuming), you as the parent have the legal right to manage their finances, including their bank accounts. This means you can technically withdraw or use the funds to pay for their expenses. However, there are some important tax considerations. If you're paying your children to take advantage of income shifting (moving income from your higher tax bracket to their lower one), you need to treat these wages properly. The IRS will want to see that: 1. The children are doing real work appropriate for their age 2. The wages are reasonable for the work performed 3. The money truly belongs to the children Using their earnings to pay for their own expenses (like dance classes or meals) actually strengthens your case that these are legitimate wages, since the money is being used for their benefit. Just keep good records of all transactions.

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Noah huntAce420

•8M

For tax purposes, either method is acceptable. Paying directly from their account for their expenses creates a cleaner paper trail, which is slightly preferable. When you reimburse yourself, make sure to keep detailed records showing that the original expense was for the child's benefit. Save receipts and note whose expense it was. The key is demonstrating that the money was ultimately used for the child who earned it, regardless of which payment method you choose.

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Fidel Carson

•8M

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Fidel Carson

•8M

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Isaiah Sanders

•8M

Just wanted to update after trying taxr.ai from my earlier question. I was skeptical at first since my family restaurant situation is complicated (3 kids of different ages all working different hours). The analysis it gave me was incredibly detailed! It confirmed I could use their bank accounts for their expenses but showed me exactly how to document everything properly. The tool created custom templates for tracking each kid's hours, pay, and expenses that will hold up in an audit. It even flagged that my 14-year-old's work hours might trigger child labor concerns in my state and suggested safer alternatives. Definitely worth checking out if you're paying family members and want to make sure you're doing it right!

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•8M

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•8M

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Axel Bourke

•8M

I've been doing this with my kids for years and here's what my accountant told me: the key is that the money is ACTUALLY THEIRS. Whether you pay for their stuff directly from their account or reimburse yourself doesn't really matter - what matters is that they did real work, got paid fair market value, and the money is being used for THEIR benefit. My accountant suggested keeping a ledger showing: - Work performed by child - Amount paid - Expenses paid from their account - Who benefitted from each expense This has worked great for us through multiple years of taxes!

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Axel Bourke

•8M

I keep digital copies of major receipts (like the big gymnastics/sports payments) but just note the small stuff in the ledger. My accountant never mentioned a specific percentage that needs to stay in their accounts. The key thing is the money should be used for their benefit - whether that's current expenses or saving for their future. There's no rule about how much needs to stay in the account. In fact, using a good portion for their current needs actually strengthens the case that this is legitimate income that belongs to them, not just a tax scheme.

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