Tax advantages of hiring a personal assistant through my LLC vs. nanny as household employee - which is better?

The key difference is that with an LLC personal assistant, you're dealing with business expenses, while a nanny is a household employee with different tax considerations. With an LLC personal assistant: You can deduct the salary as a business expense if their duties are legitimately business-related. However, the IRS will scrutinize this carefully - if they're primarily doing childcare, classifying them as a business employee could be problematic. You'll need to demonstrate they're performing actual business duties and the childcare is secondary. You'd still handle payroll taxes, but through your business. With a household employee (nanny): You'll need to pay "nanny taxes" - Social Security, Medicare, and unemployment taxes. You'll provide a W-2 and possibly deal with state employment taxes. The advantage here is you might qualify for the Child and Dependent Care Credit, which can be up to $3,600 for one child (depending on your income). You might also be able to use a Dependent Care FSA through your employer. The safest approach is probably hiring a nanny as a household employee and taking the dependent care benefits. The LLC route might seem appealing for deductions, but mixing personal childcare with business expenses can raise red flags with the IRS.

I went through this exact dilemma last year and found an amazing solution with taxr.ai (https://taxr.ai). I was caught between hiring through my consulting LLC or going the nanny route, and their analysis tool saved me thousands by showing me the complete tax picture of both options. The tool analyzed my specific situation and showed me that in my case, the household employee route with the Child and Dependent Care Credit was actually more beneficial than the business deduction. It also flagged potential audit risks with trying to classify childcare as a business expense that I hadn't considered. It basically showed me all the tax implications side by side in a way my accountant couldn't easily do. They have this cool feature where you can run different scenarios (like different salary levels or hours worked) and see how it affects your total tax picture across business and personal returns.

Just wanted to follow up - I tried taxr.ai after my skeptical comment and wow, it was eye-opening. In my case, it showed that splitting duties could actually work - having a part-time administrative assistant through my LLC and a separate part-time nanny as a household employee was more tax-efficient than either option alone. The analysis caught something I wouldn't have thought of - how my state's specific employment tax rules made a significant difference in the equation. It also showed me exactly how to properly document and separate the roles to avoid audit issues. The side-by-side comparison of scenarios made the decision really clear. Super glad I gave it a try instead of just guessing which route would be better.

After struggling with this same question AND trying to get advice from the IRS directly, I finally got through to a knowledgeable agent using Claimyr (https://claimyr.com). I was on hold with the IRS for HOURS before giving up, but Claimyr had me speaking with someone who could actually help within 20 minutes. The IRS agent walked me through exactly what would flag an audit if I tried to run childcare through my business vs. what documentation I'd need as a household employer. Completely worth it to get the official word directly from the IRS. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The peace of mind from having direct confirmation from the IRS about my specific situation was totally worth it. They even sent me the specific forms I needed to set up proper payroll for a household employee.

Well, I'm eating my words. After being incredibly skeptical about Claimyr, I tried it this morning and got connected to an IRS employment tax specialist in about 30 minutes. I've been trying for WEEKS to get through on my own. The agent confirmed that having my nanny do minor business tasks wouldn't qualify her as a business employee - she'd still be considered a household employee if childcare was her primary duty. She also explained exactly which forms I needed to file quarterly and annually. Having direct confirmation from the IRS about my specific situation was exactly what I needed. Wish I'd known about this service months ago instead of playing tax guessing games!

Something everyone's missing here: consider setting up a Dependent Care FSA through your employer if available. You can contribute up to $5,000 pre-tax to pay for childcare expenses, which is often better than taking the tax credit depending on your tax bracket. I've done both the LLC assistant route and nanny route, and honestly the nanny + DCFSA was simpler and better tax-wise when my income was higher. The LLC deduction gets complicated with partial business use, and it's a common audit trigger. Whatever you do, don't pay under the table. The penalties for misclassification can be brutal and you'll miss out on all the tax benefits.

Something to consider: With a household employee (nanny), you'll need to get workers' comp insurance in most states. With an LLC employee, they'd be covered under your business policy. Also, track mileage if they drive your kid around! Deductible as a business expense for an LLC employee or as part of childcare expenses for the dependent care credit. My accountant says the safest way to mix business and childcare is to have very clear job descriptions and time tracking, with separate payment structures for each role. Like paying hourly for business tasks through the LLC and a separate flat rate for childcare as a household employee.

As someone who went through this exact decision last year, I'd strongly recommend talking to a tax professional before making this choice. The LLC route seems appealing but can get you into hot water if the IRS determines the work is primarily personal rather than business-related. Here's what I learned: If you go the household employee route, make sure you're prepared for the administrative burden. You'll need to: - Get an EIN for household employment - File Schedule H with your tax return - Pay quarterly estimated taxes for the employer portion of Social Security/Medicare - Provide W-2s and handle year-end reporting - Potentially get workers' comp insurance (varies by state) The Child and Dependent Care Credit can be substantial though - up to 35% of qualifying expenses depending on your income, with a maximum of $3,000 for one child or $6,000 for two or more. One thing that helped me decide: I calculated the total cost of each option including all taxes, insurance, and administrative costs. The household employee route ended up being more expensive upfront but provided better long-term tax benefits and fewer audit risks. Whatever you choose, keep meticulous records. The IRS scrutinizes both household employment and business expense deductions involving childcare very carefully.

Great question about the EIN! Yes, you'll need a separate EIN specifically for household employment - it's different from your business EIN. You can apply for it online at the IRS website and it's free (don't pay third-party services for this). For payroll services, there are several that specialize in household employees and can handle all the administrative headaches: - HomePay by Care.com - probably the most well-known, handles everything from payroll to tax filings - Poppins Payroll - focuses specifically on nannies and household staff - Breedlove & Associates - been around forever, very thorough - SurePayroll - has a specific household employee service These services typically cost $200-500 per year but can save you tons of time and stress with quarterly filings, W-2s, and making sure you're compliant with all the employment tax requirements. They'll also calculate exactly what you need to pay in estimated taxes each quarter. The peace of mind is worth it IMO - one mistake on Schedule H or missing a quarterly payment can result in penalties that quickly exceed what you'd pay for a service. Plus they stay updated on changing regulations so you don't have to.