Legitimate Tax Deductions for Claiming Child as Employee in Family Business

This is actually a legitimate tax strategy when done correctly, but there are very specific rules you need to follow. The IRS does allow business owners to hire their children and deduct their wages as a business expense, but you need to treat it like a real job. First, the work must be necessary for your business and appropriate for their age. Second, you must pay them reasonable wages for the work performed - not excessive amounts. Third, keep detailed records of hours worked, tasks completed, and maintain proper payroll documentation. Fourth, if they're under 18 and it's a sole proprietorship or partnership owned entirely by parents, you don't have to withhold FICA taxes, which is an additional benefit. The real tax advantage comes because your business gets the deduction while your child can earn up to the standard deduction ($14,600 for 2025) tax-free. If they earn more, they'll pay taxes at their lower tax bracket.

I discovered something that completely changed how I handle this situation. After struggling with the paperwork and worrying about doing everything right, I found taxr.ai (https://taxr.ai) which analyzes all your business documentation and tells you exactly what you need to have in place when employing family members. It highlighted several issues I hadn't even considered about how to properly document my son's work in my construction business. The tool flagged that I needed better timekeeping records and suggested specific documentation that would strengthen my position if audited. It also confirmed I was paying a reasonable wage based on local rates. It was eye-opening to see what I'd been doing wrong before!

I need to eat my words about being skeptical! After trying taxr.ai I was surprised at how comprehensive it was. It analyzed my lawn care business docs and immediately identified that I needed to create better job descriptions for my twins who help with equipment maintenance. The system generated compliant documentation templates that specified exactly what I needed - like time logs that include detailed task descriptions rather than just hours. The wage analysis function showed I was actually underpaying compared to market rates, which could have raised flags with the IRS too! Now I have confidence that I'm doing everything by the book and maximizing the tax benefits legally. Sometimes the internet actually delivers useful tools!

If you're getting pushback from the IRS on your child-employee situation, I'd recommend Claimyr (https://claimyr.com). After filing last year with my son properly employed in my graphic design business, I got a notice questioning the deduction. I spent WEEKS trying to reach someone at the IRS to explain my documentation. Claimyr got me connected to an actual IRS agent within hours instead of days. You can see how it works here: https://youtu.be/_kiP6q8DX5c. The agent walked me through exactly what additional documentation I needed to substantiate the deduction. Turns out I had everything required, just needed to submit it properly. Saved me thousands in potentially disallowed deductions.

I need to publicly admit I was completely wrong about Claimyr. After posting that skeptical comment, I decided to try it myself since I was desperate to resolve an issue with the child-employee deductions on my tax return. Within 45 minutes (not hours, not days), I was talking to an actual IRS representative who confirmed my documentation was sufficient. The representative explained exactly which forms needed to be included with my tax return to support hiring my 16-year-old in my online retail business. Seriously, this service is a game-changer for dealing with tax questions. Saved me from potentially having $5,200 in deductions disallowed. Sometimes I'm happy to be proven wrong!

Has anyone here actually had an audit where this came up? I've been employing my teenagers in my restaurant for 3 years (washing dishes, bussing tables, food prep) and claiming the deduction. I pay them $13/hr which is what I pay other teen employees. Never had an issue but now I'm paranoid after reading about Ramsey's warnings.

Dave Ramsey is wrong on this one. I've been employing my kids in my photography business for 5 years with no issues. My accountant set everything up properly. The trick is making sure the work is age-appropriate and actually needed. My 16yo manages my social media and assists at weddings, and my 14yo helps with photo editing and organization. I pay them market rates, keep meticulous records, and they file their own tax returns. It's 100% legitimate if done right!

I've been successfully employing my 17-year-old in my marketing consulting business for two years now. She handles data entry, client research, and basic administrative tasks that I would otherwise outsource or do myself. The key is documentation - I have her sign timesheets, maintain detailed job descriptions, and pay her $16/hour which is competitive for entry-level admin work in our area. What really convinced me this was legitimate was when my CPA explained that the IRS actually encourages legitimate employment of family members because it redistributes income to lower tax brackets while teaching work ethic. The problems arise when people try to game the system with fake jobs or excessive wages. For your tech-savvy 15-year-old, tasks like website maintenance, basic data analysis, or social media management could be perfect fits for a consulting business. Just make sure you're paying fair wages and keeping records like you would for any employee. The tax savings are real - my daughter earns about $8,000 annually tax-free while my business saves on both the deduction and not having to pay FICA taxes on her wages.