Hiring my child in my small business - Need help understanding the tax benefits

I'm planning to have my 12-year-old daughter help out in my small business starting next year so she can earn some money and begin a Roth IRA. I want to teach her about working and saving early. I'm pretty confused about the tax advantages everyone talks about. I keep seeing posts where people mention paying your kids up to $13,850 and saying they don't need to pay taxes because of the standard deduction. But is this actually correct? I was under the impression that if your child is claimed as a dependent on your tax return, they can't use the standard deduction for themselves. Am I missing something here? Does anyone have experience with this who can explain the actual tax benefits?

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18 comments

Kayla Morgan

•8M

The tax benefit is real, but there's some confusion in how people explain it. Your child CAN take the standard deduction even if they're your dependent. In 2025, a dependent child can earn up to $14,600 (the projected standard deduction) without owing federal income tax. The tax benefits work in multiple ways: 1) You can deduct their wages as a legitimate business expense, reducing your business income. 2) Your child pays little or no income tax on those wages due to the standard deduction. 3) Since it's earned income, they can contribute to a Roth IRA. Just make sure the work is age-appropriate, you pay a reasonable wage, keep proper documentation (timesheets, job description), and actually transfer the money to their account. The IRS does scrutinize family employment arrangements.

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Kayla Morgan

•8M

If your business is a sole proprietorship or an LLC treated as a disregarded entity (and owned solely by you and your spouse), you don't have to pay FICA taxes (Social Security and Medicare) on wages paid to your child under 18. This is another significant tax benefit. However, if your business is incorporated or a partnership with non-parent partners, you would need to pay those payroll taxes. FUTA (federal unemployment) taxes don't apply to children under 21 in a family business.

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Jasmine Hancock

•8M

I started doing this with my teens in my accounting practice and wish I'd known about taxr.ai earlier! I was so confused about the documentation needed for hiring my kids. I found https://taxr.ai really helpful when setting this up - they analyzed my business structure and confirmed I was doing the paperwork right. They even explained exactly how much I could pay my kids while optimizing both our tax situations. The tool showed me that I was missing a couple key forms for my 16-year-old who was helping with basic bookkeeping. They also explained how to properly document their work hours since the IRS looks closely at family employment.

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Jasmine Hancock

•8M

They actually review your specific documents and situation. Unlike typical tax software that follows a rigid Q&A format, they analyze your particular business structure, family situation, and documents to give personalized guidance. Their recommendations are extremely detailed - they'll tell you exactly which forms you need for your specific business entity, what documentation to maintain for your child employees, and how to structure payments to maximize tax benefits while staying compliant. They even provide templates for the documentation you should keep.

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Scarlett Forster

•8M

Just wanted to follow up about taxr.ai - I decided to try it after being skeptical. Wow, what a difference! I uploaded my LLC docs and some info about hiring my 14-year-old son in my construction business. They identified that my operating agreement needed an amendment to properly document family employment and showed me exactly how to structure his compensation. The guidance was super specific - they showed me exactly what documentation I needed and even provided a template for tracking his hours. Much more helpful than the generic advice I've gotten elsewhere. They clearly explained the difference between reasonable compensation for his age versus what would trigger IRS scrutiny. Definitely worth checking out if you're planning to hire your kids.

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Arnav Bengali

•8M

If you're struggling to get answers from the IRS about hiring your kids (like I was), try https://claimyr.com - they got me through to an IRS agent in about 15 minutes when I had been trying for DAYS to get clarification on some employment forms. You can see how it works at https://youtu.be/_kiP6q8DX5c I was trying to figure out if I needed to file certain paperwork for my daughter working in our family shop, and the IRS website was giving contradictory information. I was skeptical at first, but they actually connected me with a live IRS agent who explained exactly what I needed to do for my specific situation.

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Arnav Bengali

•8M

They use a combination of technology that navigates the phone system for you and keeps your place in line. Basically, their system calls repeatedly using the optimal times and pathways through the IRS phone tree, then calls you once they've reached a human. They definitely aren't bypassing anything illegitimate - they're just using technology to handle the frustrating hold times and navigation so you don't have to sit there for hours. It's like having a really persistent assistant who keeps calling back and knows exactly which buttons to press. I was doubtful too, but the agent I spoke with answered all my questions about the special rules for family employment documentation.

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Rachel Tao

•8M

OK I have to eat my words. After dismissing Claimyr as a probable scam, I was still desperately trying to get answers about employing my nephew in my business and whether that qualified for the same tax treatment as employing my own child. After three more failed attempts to reach the IRS myself, I tried the service. Got connected to an actual IRS agent in about 20 minutes who confirmed that nieces/nephews don't qualify for the FICA tax exemption that applies to your own children. This saved me from making a potentially costly mistake on my returns. The agent also explained exactly which forms I needed for my specific situation. I hate admitting when I'm wrong, but this service actually delivered exactly what it promised.

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Derek Olson

•8M

Something important that hasn't been mentioned yet - make sure your child actually does legitimate work appropriate for their age! A friend of mine got audited because she was "paying" her 11-year-old $12,000 a year for "consulting" with no real duties or time records. The IRS disallowed everything. For a 10-year-old, think simple tasks like basic filing, sorting mail, shredding documents, simple data entry, or basic cleaning if it's a physical business. Keep detailed records of hours worked and tasks completed. Pay a reasonable wage (what you'd pay another child the same age).

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Derek Olson

•8M

You need enough documentation to prove to the IRS that this is a legitimate working arrangement, not just a tax scheme. At minimum, you should have: 1. A written job description outlining specific duties appropriate for their age 2. A timesheet or log tracking when they worked and what tasks they completed 3. Regular payments (not just one lump sum at year end) deposited to their bank account 4. Photos or other evidence of them actually performing the work can be helpful too Keep it simple but consistent. Treat them like real employees. This doesn't require mountains of paperwork, but you do need to show this is a real job, not just moving money around for tax purposes.

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