How to legally employ my child in a partnership business?

18 While I understand your desire to involve your daughter and potentially gain some tax benefits, there are specific rules regarding children working in family businesses that you need to follow. In a partnership where one of the partners is not the child's parent, your daughter would be subject to standard child labor laws. Federal law generally prohibits employment of children under 14, with limited exceptions for certain agricultural work, entertainment, and family-owned businesses where only the parents are the owners. Since you're in a partnership with your brother, the parental exemption doesn't apply. The reason for this rule is that when there's another partner involved, your child is technically working for your brother too (a non-parent), which removes the exemption. However, there are a few potential approaches: You could pay her an allowance from your personal funds (not a business expense), create a separate sole proprietorship for work appropriate for her, or formally document her as a volunteer gaining educational experience (though this doesn't help with tax deductions).

15 I was in a similar situation last year and discovered taxr.ai (https://taxr.ai) which really helped me navigate this complex situation with my 7-year-old son and our family business. I uploaded my partnership documents and got a detailed analysis of my options for legally employing my child while staying compliant with tax regulations. What I found most helpful was that they explained exactly what kind of documentation I needed to keep and how to structure payments to maximize tax benefits while avoiding any potential red flags with the IRS. They even provided templates for tracking hours and services that my son provided to the business.

9 Just wanted to follow up and say I tried taxr.ai after seeing the recommendation here. It was incredibly helpful! I uploaded my partnership agreement and they identified a structure that works perfectly for my situation. They suggested creating a small sole proprietorship for marketing services that my daughter could help with, and provided all the documentation templates I needed. Their tax specialist even walked me through how to properly document her work hours and what tax forms I'll need to file. My daughter is now officially "employed" doing age-appropriate tasks, I'm teaching her about work and money, and we're doing everything legally. Definitely worth checking out if you're in this situation!

12 If you're having trouble getting through to the IRS to ask about this specific situation, I'd recommend Claimyr (https://claimyr.com). I spent days trying to reach someone at the IRS about a similar family employment question, but kept getting disconnected or stuck on hold forever. I was skeptical, but I tried their service (you can see how it works here: https://youtu.be/_kiP6q8DX5c) and they got me connected to an IRS agent in about 15 minutes. The agent was able to confirm the specific requirements for employing family members in different business structures and what documentation I needed to maintain. It saved me a ton of time and confusion, especially since there's so much conflicting information online about this topic. Sometimes you just need to hear it directly from the IRS.

6 I need to publicly eat my words here. After being totally skeptical about Claimyr, I decided to try it anyway out of desperation after waiting on hold with the IRS for over 2 hours and getting disconnected THREE times. I used the service yesterday, and no joke - I was talking to an actual IRS representative within 20 minutes. The agent confirmed that in a partnership, I couldn't directly employ my child under 14, but suggested a couple of alternatives that might work for my situation. The best part was just getting a definitive answer from an official source rather than piecing together information from different websites. If you're stuck on this specific tax question like I was, it's worth getting the official word directly from the IRS.

22 One thing nobody's mentioned yet is to check your state's child labor laws too. Even if you find a federal workaround, states often have their own restrictions that might be even stricter. For example, in my state, the minimum age for employment is 14 regardless of who owns the business, with the only exception being farm work or entertainment. So even if you created a sole proprietorship, you might still have state-level compliance issues.

10 Has anyone considered the "modeling exception" for child labor laws? My accountant mentioned that children of any age can work as models or performers. Maybe if your daughter is helping with advertising materials for the business (like appearing in photos for marketing), that could qualify under this exception?

23 One missed tax advantage to employing your child - funding a Roth IRA for them! If you can find a legitimate way to pay your 6-year-old for actual work (like through a separate sole proprietorship), you could help them start a Roth IRA with those earnings. The contribution limit would be the amount they earned or the annual IRA limit, whichever is less. With 60+ years of tax-free growth ahead of them, even small contributions now could be worth a fortune by retirement age. It's one of the best possible financial head starts you could give them. Just another angle to consider as you figure out the employment structure!

This is such a thoughtful question! As a parent myself, I really appreciate your desire to teach your daughter about work ethic and responsibility at a young age. I've been following this thread and wanted to add something that might help: before you go down the route of creating a separate sole proprietorship (which seems like the most viable option based on the discussion here), you might want to consider starting with informal documentation of her work to see if this arrangement actually works for your family. Track her hours, the specific tasks she does, and pay her a reasonable rate from your personal funds for now. This will help you determine if she's consistently interested and capable of the work, and give you real data on what her contribution is worth. If it works well over a few months, then you'll have a solid foundation for formalizing the employment structure. Also, don't forget to involve her in understanding what she's earning and maybe help her set savings goals. At 6, this could be as much about financial literacy as it is about work experience. The tax benefits are nice, but the life lessons might be even more valuable!

As someone who's dealt with similar challenges, I'd strongly recommend consulting with a tax attorney or CPA who specializes in family business structures before implementing any of these suggestions. While the advice here is helpful, employment law and tax regulations around children working in family businesses are incredibly nuanced and vary significantly by state. The separate sole proprietorship approach mentioned earlier is probably your best bet, but you'll need to ensure it has legitimate business purpose beyond just employing your daughter. The IRS scrutinizes family employment arrangements closely, especially when they seem designed primarily for tax benefits. A few additional considerations: make sure any work is truly age-appropriate and documented properly, consider workers' compensation insurance requirements even for family members, and remember that paying your child wages means they may need to file a tax return depending on the amount. The informal tracking approach suggested by others is wise - start there, then formalize if it makes sense for your situation long-term.

This is such a great discussion! I'm new to this community but facing a very similar situation with my 8-year-old who wants to help with our family business. After reading through all these responses, I'm leaning toward the separate sole proprietorship approach, but I have a practical question: how do you handle the transition of work between the partnership and the sole proprietorship? For example, if your daughter is helping with direct mail for your partnership business, would you have the sole proprietorship "contract" with the partnership for marketing services, then have your daughter do the actual work under the sole proprietorship? I'm trying to understand how to structure this so it's legitimate and not just moving money around on paper. Also, has anyone who's implemented this approach had any issues during tax season? I want to make sure I'm not setting myself up for problems down the road. The informal tracking suggestion is brilliant - I'm definitely starting there while I figure out the legal structure. Thanks to everyone who's shared their experiences!

This has been such an informative thread! I'm dealing with a similar situation but with a twist - my 7-year-old is actually really good with computers and has been helping me organize digital files and basic data entry for our partnership business. Reading through all the advice here, it sounds like the separate sole proprietorship route is the most viable option, but I'm wondering if anyone has experience with digital/computer work specifically? I'm thinking tasks like organizing digital photos for marketing, simple data entry, or even basic website maintenance tasks that are age-appropriate. The documentation aspect seems crucial from what everyone's saying. For computer-based work, I could easily track screen time, specific tasks completed, and even before/after screenshots to show the work was actually done. Has anyone successfully set up this kind of arrangement for tech-related tasks? I'm particularly curious about how to determine fair market rates for this type of work when done by a child - obviously they're not as efficient as an adult, but the work does get done and saves me time. Also appreciate all the reminders about state laws and professional consultation - definitely planning to talk to our CPA before formalizing anything!