How to Hire Your Kids and Save $12,000 in Taxes (Legally)

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Nov 12, 2025

What if your kids could earn while helping your business? Discover how hiring your children can save you taxes while teaching them valuable financial skills. You can pay them tax-free and use that income to cover family expenses like camps. Learn the IRS rules that exempt their earnings from Social Security taxes and how to set this up correctly. Plus, see how this strategy can help fund their Roth IRAs, turning small contributions into potentially big savings over time!

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ANECDOTE

Family Payday Cut A Big Tax Bill

A business owner paid his three teenage sons as employees instead of gifts and saved over $12,000 in taxes that year.
Mike Jesowshek presents this as a real, reproducible case that motivated the episode.

INSIGHT

Turn After-Tax Support Into Pre-Tax Pay

Paying kids converts after-tax family support into pre-tax business spending when the work is legitimate.
This both lowers your taxable income and gives children tax-free earnings for expenses like camps.

ADVICE

Use Schedule C To Avoid FICA For Kids

If your business is a sole proprietorship or a partnership of the parents, wages to children under 18 avoid Social Security and Medicare taxes.
Use a Schedule C or single-member LLC payroll to realize that FICA exemption correctly.

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What if you could pay your kids a salary, take a business deduction, and teach them real financial skills at the same time? In this episode, Mike Jesowshek, CPA, explains how to legally hire your children in your business, what the IRS actually allows, and how to do it correctly so you avoid audits and penalties.

You’ll learn the rules for paying your kids under age 18, how to document their work, how much you can pay them tax-free, and how this strategy can double as a wealth-building tool through Roth IRAs.

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Chapters

(01:16) Why Hire Your Kids?
There are two big reasons: tax savings and teaching opportunities. You get a business deduction, and your kids earn tax-free income while learning real work and money skills.

(02:11) Turning After-Tax Spending Into Pre-Tax Spending
Instead of paying for sports, camps, or activities with after-tax dollars, you can pay your kids from your business and let them cover those costs using pre-tax income.

(03:30) What the IRS Actually Says
Payments to children under 18 working for a parent’s sole proprietorship are exempt from Social Security and Medicare taxes. Mike reads the exact IRS language to prove it’s black and white in the tax code.

(04:11) How It Works in Practice
If your child earns under the standard deduction (about $15,000), they pay no income tax. You deduct their wages as a business expense, and you avoid FICA taxes if paying from a Schedule C or single-member LLC.

(06:21) Setting It Up Correctly
You need proof. Mike explains that kids must be at least 7, paid a reasonable wage, tracked for hours and tasks, paid into their own account, and issued a W2 at year-end.

(11:04) Bonus Benefit: Roth IRA
Kids can use earned income from the business to fund a Roth IRA. Mike shows how $25,000 invested by age 13 could grow to over $1 million by retirement.

(12:55) What About S Corps?
S corporations must withhold FICA taxes, but Mike explains a workaround: Splitting part of the business into a Schedule C entity to pay your kids through that side.

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🎙 ABOUT THE PODCAST
The Small Business Tax Savings Podcast is your go-to resource for cutting-edge tax strategies to help entrepreneurs legally slash their tax bills. Hosted by Mike Jesowshek, CPA, this show breaks down complex tax topics into clear, no-fluff insights so you can keep more of your hard-earned money.