Hiring the kids moves income from being taxed at your tax bracket to being taxed at theirs which could be as low as zero percent.

While this method of moving income from your tax bracket to that of your children, or even grandchildren, is perfectly legal, it does require the child (or children) being paid provide a real service to your business. These services could include managing the business’s social media account, answering phones, marking and stocking inventory, web design or even modeling for promotional materials. The key is they must do the work and be paid what a similar, non-related, employee would be paid for the same job.

For example, when my oldest was going to college, he handled all my web design and was paid a substantial amount, so much in fact that, he did not qualify as a dependent. With education credits and his standard deduction, he paid no income tax and had I been taxes on the income and then given it to him for college I would of paid a substantial amount of taxes.

I had another client with young children that sold children’s clothing. He paid his small grandchildren to be fit models and to appear in his advertising for his clothing line. The grandkids all had ROTH IRA accounts that were funded with what he paid them.

If you’re a sole proprietor, you don’t have to pay or deduct Social Security and Medicare for your children if they are under 18. If you’re incorporated, or you are paying a grandchild, you will have to pay the Social Security and Medicare taxes but this can be a small price to pay to get income out of your tax bracket and into theirs.

In addition to your child or grandchild needing to perform a real service they also need to actually be paid and to benefit from being paid. This means you can’t just pay them and then take the money back as support.

It’s important to discuss this strategy with your tax professional to learn if it fits into your needs and just what has to be done to protect the deduction.

Our tax pros would be happy to assist you with this and any number of tax reduction strategies.