By If you have children and you own a business, here is a strategy worth your attention: hire them.
Consider one example: A business owner pays her 13-year-old $16,100 in 2026 to work in her Schedule C business. The child owes zero federal income tax because the 2026 standard deduction for a single taxpayer is $16,100. Meanwhile, that $16,100 wage deduction reduces federal and state taxes and puts roughly $6,614 back in the owner’s pocket.
The family keeps the full $22,714 (child has $16,100, the owner has $6,614).
You can go further. Add a $7,500 deductible traditional IRA contribution to the child’s wages of $16,100, and the child can earn $23,600 with no federal tax at all. Better yet, if the wages stay at or below the standard deduction, put the money in a Roth instead—a deduction is worth nothing to a child paying zero tax, whereas the Roth grows and comes out tax-free.
Your choice of operating entity matters. In a proprietorship or a spouse-only partnership, wages to your under-age-18 child escape Social Security and Medicare tax, and wages to a child under age 21 escape federal unemployment tax. A corporation gets no such break, which costs the family roughly $2,500 on $16,100 in wages. Even so, this is a valuable strategy for the family with the corporation.
One caution on Section 199A: Wages to your child reduce your qualified business income and shrink that deduction. But if your income is high enough that the W-2 wage limitation applies, the wages can actually increase your deduction.
Finally, do the paperwork. One attorney lost nearly all her wage deductions and drew negligence penalties because she had no W-2s, no payroll records, and no time sheets. Pay by W-2 payroll check, require a time sheet, and document a reasonable rate of pay.
If you want to discuss hiring your child, please call me directly at 408-778-9651.