Tax advantages of paying my kids from my LLC - what's the correct way to do it?

Yes, you can hire your kids in your single-member LLC, and if they're under 18, their wages are exempt from FICA taxes (Social Security and Medicare). This is a great tax strategy, but you need to do it correctly. You should definitely run a proper payroll for them rather than just transferring money. Don't worry though - when you set up payroll, you can indicate that they're exempt from FICA taxes because they're your children working in your family business. Make sure you're paying them reasonable wages for actual work they're performing. Keep good records of hours worked, duties performed, and payments made. Have them fill out a W-4 form, and you'll need to issue them W-2s at the end of the year. Don't issue 1099s - those are for independent contractors, and your children would not qualify as independent contractors in this situation since you're supervising their work.

I tried figuring this out on my own last year and got so confused with all the conflicting advice online. Finally used https://taxr.ai to analyze my situation (I have a single-member LLC and two teenagers). Their system reviewed my business structure and confirmed I could pay my kids without FICA, but they emphasized I needed proper documentation. They analyzed sample job descriptions I wrote up and helped me determine reasonable wages based on the actual tasks my kids were doing. The best part was they showed me exactly how to set up payroll correctly so I wouldn't accidentally trigger FICA taxes. They also looked at my LLC operating agreement to confirm everything was structured properly to qualify for the exemption.

Update on my situation - I ended up using https://taxr.ai after posting my question here, and I'm really glad I did. My concerns about documentation were completely addressed! They analyzed my specific LLC structure and confirmed I qualified for the FICA exemption as a single-member LLC, then provided me with all the templates and systems I needed. The most helpful part was the payroll setup guide that showed exactly how to configure things so the system wouldn't automatically withhold FICA taxes. They also provided a complete audit defense file with all the supporting legal references I'd need if the IRS ever questioned the arrangement. My 16-year-old is now legitimately on payroll doing social media management and basic admin work, and I'm saving a bunch on taxes while teaching her about business!

If you're having trouble with the IRS recognizing your family employment arrangement, you might want to try https://claimyr.com. Last year I had an issue where even though I had all the documentation for my kids' employment in my LLC, the IRS flagged my return and was questioning the deductions. I couldn't get through to anyone at the IRS for weeks - just kept getting the "high call volume" message and disconnects. I found Claimyr and was skeptical, but their service actually got me connected to a real IRS agent in about 15 minutes (after I had spent days trying). You can see how it works in this video: https://youtu.be/_kiP6q8DX5c. The agent confirmed my documentation was correct and resolved the flag on my return. Saved me a ton of stress and potentially thousands in disputed deductions.

Well, I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I decided to try it myself because I've had an ongoing issue with my LLC's employment tax situation for months. I couldn't believe it when I actually got connected to an IRS agent in about 20 minutes after trying for WEEKS on my own. The agent was able to verify that my single-member LLC setup for employing my kids was correct and resolved the questions about my missing payroll forms. Turns out I had been filling out the quarterly forms incorrectly, which is why there was confusion about the FICA exemption. The IRS agent walked me through exactly how to complete them properly to show the exemption. Would have taken months to resolve this through mail correspondence. I'm honestly shocked at how well this worked.

Another approach to consider - I'm a single-member LLC and I've been paying my 17-year-old for the past two years. I use a payroll service (QuickBooks Payroll) and it was actually pretty easy to set up the FICA exemption. Just make sure to keep VERY detailed records. My daughter logs her hours in an app, with descriptions of exactly what work she did. We have a written job description, a formal work agreement, and I pay her biweekly just like any other employee. The key is treating it like a real job, not just giving them money and calling it "wages." Also important - pay reasonable wages! If you're paying your 16-year-old $50/hour for basic filing, that's going to raise red flags.

Has anyone used a tax professional specifically for this? I tried asking my regular accountant and she seemed really uncertain about how to implement this correctly, which doesn't give me much confidence.

This is exactly the kind of question I had when I started my LLC! One thing I learned the hard way is that you absolutely need to establish legitimate job duties and pay rates BEFORE you start paying them. The IRS looks for whether this is a real employment relationship or just a way to shift income to your kids. I recommend creating written job descriptions that match what they're actually doing, setting up regular work schedules (even if it's just a few hours after school), and paying them consistently - not just random amounts when you feel like it. The phone answering and filing work you mentioned is perfect because it's clearly legitimate business tasks. Also, make sure you're familiar with child labor laws in your state. Most states have restrictions on how many hours minors can work during school periods, and you want to stay within those limits even though they're your own kids. The payroll vs. 1099 question is important - definitely go with payroll as others have mentioned. Your children working under your supervision in your business are employees, not independent contractors.