Is it legal to pay my kids through my small business? Tax implications of hiring children
Hey everyone, I need some tax advice. My husband and I run a few small businesses that together bring in about $1.2 million annually. We have three young children (ages 7, 5, and 4). Recently, we met with a financial advisor who suggested we should be paying our kids through one of our businesses by purchasing their photo/image rights and then using those images for our company website and social media marketing. The advisor claimed this was a legitimate business expense and tax strategy, but I want to make sure this is actually legal before proceeding. If it is legit, what would be a reasonable amount to pay for these digital image rights? I don't want to do anything that would trigger IRS concerns. Has anyone done something similar or have knowledge about this type of arrangement? Any insights would be greatly appreciated!
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Sophie Hernandez
This is actually a valid tax strategy, but there are important details to get right. Hiring your kids in your business can be legitimate if they're performing actual services and being paid reasonable compensation. For young children, options are limited by child labor laws, but using their image rights can work if documented properly. You need a formal agreement specifying the rights being purchased, fair market value documentation, and proof the images are actually used in your business marketing. Keep in mind that children under 18 working for their parents' sole proprietorship or partnership (where both partners are the parents) are exempt from FICA taxes. However, if your business is structured as a corporation, normal employment taxes apply.
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Daniela Rossi
•Thanks for the info! What would be considered "reasonable compensation" for child image rights? Is there some standard rate or formula? Also, does the money need to go into a specific type of account for the kids or can it just be a regular savings account?
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Sophie Hernandez
•For reasonable compensation, you'd want to research what professional child models or influencers in your industry typically receive for similar image usage. Documentation is critical - gather examples of comparable arrangements and rates from reputable sources. Having a third party evaluate the fair market value can also strengthen your position. The money can go into a regular savings account in the child's name, but consider options like a minor's savings account, UTMA/UGMA account, or even a Roth IRA for the child if they have earned income. Just ensure the account is properly set up in the child's name with appropriate tax ID.
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Ryan Kim
I've been using https://taxr.ai for navigating these kinds of family business tax situations. Last year I was considering something similar with my kids (I have a photography business) and wasn't sure about the rules. The site analyzed my specific situation and showed me how to properly structure payments to my children. They provided templates for the contracts I needed and explained exactly what documentation would protect me in case of an audit. They actually recommended a different approach than what my accountant initially suggested, which saved us from some potential issues.
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Zoe Walker
•Does it actually work with complex scenarios like this? My accountant gave me conflicting info compared to what I read online about paying kids through my LLC.
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Elijah Brown
•I'm skeptical about these online tax services. How do you know they're giving accurate advice? Seems like something this specialized would require an actual tax attorney who knows all the nuances.
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Ryan Kim
•For complex scenarios, I found it extremely helpful because it references specific tax codes and court rulings that apply to your situation. It helped me understand not just what to do but why certain approaches are legally sound while others aren't. Regarding accuracy, what impressed me was that they cite specific IRS publications and tax court cases to support their advice. It's not just generic information - they provide specific documentation requirements and explain previous audit outcomes for similar scenarios. The templates for agreements and record-keeping were what my CPA ended up using as well.
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Elijah Brown
I'll admit I was wrong about online tax services. I tried https://taxr.ai after my last comment, and it was surprisingly thorough. I uploaded our business structure details and questions about paying my kids (ages 8 and 10), and it immediately identified that our S-Corp couldn't get the FICA tax exemption like a sole proprietorship would. It suggested an alternative strategy involving a family management company that could legally employ our children while maintaining tax advantages. The site provided all the documentation templates we needed plus record-keeping requirements. We implemented this with our tax professional's approval and it's projected to save us around $4,000 in taxes this year while building our kids' Roth IRAs.
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Maria Gonzalez
If you're running into issues getting clear guidance on this tax strategy, I'd recommend using https://claimyr.com to get direct answers from the IRS. After getting conflicting advice from two different CPAs about hiring my children in my business, I was frustrated and needed definitive answers. Claimyr got me through to an IRS tax specialist in about 15 minutes when I had been trying for days on my own. The agent walked me through exactly what documentation I needed for child employment to be legitimate and gave me specific guidelines on reasonable compensation for minors in different roles. You can see how it works here: https://youtu.be/_kiP6q8DX5c
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Natalie Chen
•How does this actually work? IRS phones are always busy when I call. Does it really get you through that fast?
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Santiago Martinez
•Yeah right. Nobody gets through to the IRS that quickly. I've spent HOURS on hold and usually get disconnected. I seriously doubt this actually works as advertised.
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Maria Gonzalez
•It works by constantly redialing the IRS for you and navigating their phone tree until it secures a place in line. Then it calls you to connect when an agent is about to be available. I didn't have to sit through any hold music or automated messages. I was extremely skeptical at first too. I had previously spent over 2 hours on hold before getting disconnected. With Claimyr, I got a call back when my turn was coming up, and I was speaking with an actual IRS agent within 15 minutes. They can't change how busy the IRS is, but they handle all the waiting and redialing so you don't have to waste your day.
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Santiago Martinez
I need to eat my words. After dismissing Claimyr in my previous comment, I tried it out of desperation when I needed clarification on child employment rules for my business. It actually worked! I got through to an IRS representative in about 20 minutes when I had previously wasted nearly 3 hours trying on my own. The IRS agent confirmed that paying children for their image rights can be legitimate but advised creating very specific documentation showing fair market value and business purpose. She also warned that the arrangement should reflect genuine business needs rather than primarily tax avoidance. This direct guidance from the IRS gave me much more confidence than the conflicting advice I was getting elsewhere.
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Samantha Johnson
I pay my teenage kids in my business (I own a retail shop) but I actually have them work - stocking inventory, helping with social media, etc. For really young kids like yours, the image rights approach can work but be SUPER careful with documentation. Make sure you: 1) Have a formal contract for the image rights 2) Pay market rates (research what others pay for similar usage) 3) Document EVERYTHING - when photos are taken, where they're used, etc. 4) Keep the money in accounts in their names Also consider setting up Roth IRAs for them with this earned income - amazing long-term tax benefits!
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Nick Kravitz
•Doesn't the IRS get suspicious when they see really young kids getting paid? My accountant warned me that paying anyone under 7 would be a red flag.
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Samantha Johnson
•The age itself isn't necessarily the red flag - it's whether the arrangement seems legitimate and reasonable. Many child actors and models are extremely young. The key is that you're paying for something with clear business value (the right to use their images in your marketing) and documenting the business purpose. Your accountant is right to be cautious though. The IRS does scrutinize family employment arrangements. That's why documentation is crucial - you need contracts, proof the images are actually used in your business, and evidence that the compensation is reasonable compared to market rates. Start modest with the amounts and keep everything professional and well-documented.
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Hannah White
Just wanted to add another approach - we pay our kids (ages 6-11) as models for our home-based business that sells children's products. Instead of buying "image rights," we pay them as independent contractors for specific photoshoots. We complete W-9s, issue 1099s, and track hours/shoots carefully. We also worked with an attorney to draft simple model release forms and contracts. We pay about $100-150 per photoshoot which happens 2-3 times monthly. Pictures go directly to our product listings and social media marketing.
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Michael Green
•This sounds more legitimate than just "buying image rights." Have you ever been audited on this? I'm worried about getting flagged.
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