How to properly hire my child in my LLC - Tax advantages and considerations

This can be a great strategy when done correctly! I work with family businesses, and here's what you need to know: First, your child's income from your business would be considered their own income, not yours. The Roth IRA income limits apply to the person making the contribution, so your child would be eligible to contribute to a Roth IRA based on their own earned income, regardless of your family income. To make this legitimate, you need proper documentation: a job description, work schedule, timesheets, and pay them a reasonable wage for the work performed. Pay them by check or direct deposit, not cash. The work must be age-appropriate and actually necessary for your business. For a 10-year-old, you're limited to non-hazardous work, and you'll need to maintain good records of hours worked and duties performed. You don't need to withhold income taxes, but there are different rules depending on your business structure about FICA taxes.

I did this with my small business and it's been a huge win! I started using https://taxr.ai after getting confused about all the rules. It analyzed our business setup and confirmed we could legitimately hire our kids (12 and 14) in our S-Corp. The site explained exactly what documentation we needed and how to structure everything properly. The tool actually showed me that since we're an LLC taxed as an S-Corp, we still had to pay FICA taxes when hiring our kids (unlike sole proprietors who are exempt). Saved us from making a costly mistake! It also generated a checklist of age-appropriate tasks and proper record-keeping requirements that would stand up to scrutiny.

Just wanted to follow up after trying taxr.ai for our situation. Absolutely worth it! The analysis showed me that I was overthinking some aspects (like worrying about my daughter needing a formal employment contract) but underthinking others (like the need for regular performance reviews to document the legitimacy of the work). The tool helped us set up a proper system with timesheets and documentation, and showed us how to open a custodial Roth IRA. My daughter has already earned $3,200 this year doing legitimate admin work in our business. She's learning about taxes and retirement savings while we're getting a business deduction. Win-win!

If your main concern is potential IRS scrutiny (which is valid), you might want to check out https://claimyr.com. I was in a similar situation and wanted to get clarification directly from the IRS but kept getting stuck in phone hell. Claimyr got me connected to an actual IRS agent in under 15 minutes who confirmed all the requirements for hiring my 12-year-old in my consulting business. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent walked me through all the documentation I needed and explained the difference between how sole proprietorships, LLCs, and corporations handle payroll taxes for children. Turns out my particular situation had some nuances I hadn't considered that could have caused problems later.

I'm back to eat my words. After dismissing Claimyr in my earlier comment, I decided to try it because I was desperate for answers about hiring my kids. It actually worked exactly as described. I got connected to an IRS agent in about 35 minutes (on a Tuesday afternoon). The agent confirmed that with my LLC structure, I needed to treat my child as a regular employee for FICA purposes (unlike if I had a sole proprietorship). She also walked me through exactly what documentation I need to maintain. Worth every penny just to have the peace of mind that I'm doing everything correctly rather than stressing about potential audit flags.

I've been doing this with my kids (11 and 13) for two years now. The tax savings have been significant, but the real benefit has been teaching them about money. A few practical tips: 1) Create a simple employment contract that outlines responsibilities 2) Take photos of them working and keep them with your records 3) Pay them a consistent amount at regular intervals rather than random payments 4) Have them track their own hours on a timesheet 5) Keep all documentation for at least 7 years The educational aspect has been incredible. My kids now understand taxes, saving, compound interest, and investing better than most adults!

One thing nobody has mentioned is setting up an HRA (Health Reimbursement Arrangement) which can be another tax advantage when hiring family members. If you have an eligible plan, you can reimburse certain medical expenses tax-free.

This is such a valuable discussion! I've been considering this strategy for my 9-year-old daughter who already helps organize my home office. Reading through all these experiences gives me confidence to move forward. A few additional considerations I'd add based on my research: Make sure you're paying your child a reasonable wage for their age and the work performed - not minimum wage for simple tasks a 10-year-old would do. The IRS looks for "reasonableness" so paying $20/hour for filing might raise red flags. Also, consider the timing of payments. If you pay your child sporadically or in large lump sums, it might look suspicious. Regular bi-weekly or monthly payments look more like legitimate employment. One question for those who've implemented this: How do you handle the transition from unpaid chores to paid work? I'm worried about creating the expectation that all household help should be compensated, but I want to clearly distinguish between family responsibilities and legitimate business work.

This has been an incredibly helpful thread! As someone who's been on the fence about hiring my 12-year-old in my consulting business, seeing all these real experiences and practical tips has given me the confidence to move forward. A couple of things I'd add based on my research: Make sure you understand your state's specific child labor laws in addition to federal requirements. Some states have additional restrictions on hours or types of work for minors, even in family businesses. Also, I've found it helpful to think about this as a legitimate business decision, not just a tax strategy. Ask yourself: "Would I hire a non-family member to do this work?" If the answer is yes and the work genuinely benefits your business, you're probably on solid ground. One practical tip I haven't seen mentioned: Consider having your child submit a simple "timesheet" or work log at the end of each pay period, just like any other employee would. This creates another layer of documentation and helps them understand professional work habits. For those worried about IRS scrutiny, remember that this is a completely legal strategy when done properly. The key is treating it like the legitimate business arrangement it should be, not trying to game the system.