Hire your children. Save on your taxes. Here’s how.

If you hire your children to perform bona fide work for your business, and you pay them reasonable compensation for that work, you can take a deduction for the amount you pay them.

Why it matters: As a parent, you want to give your children a head start on building a career.

• As a business owner, you want to find the best way to lower your taxable income.
• Hiring your child to work in your business can accomplish both of these goals.

The big picture: Along with being a deduction for your business, the income is shifted to a lower tax bracket, and may be tax-free if the child makes less than the standard deduction amount.

Here are a couple of guidelines to keep in mind.

• The work should be directly related to your business
• Be sure to keep a timesheet with the dates, hours, and services performed.
• You can pay your child with a check, and deposit the check in an account in the child’s name.
• This can be made into a Roth IRA, Section 529 college savings plan, or custodial account.

Get more with exclusive information from our Peden Accounting Services blog!

• Learn what ages the kiddie tax applies to, as well as how much they can make.