How to Legally Pay Your Kids Through Your Business:
A Tax-Savvy Strategy for Legacy Builders and Wealth Architects
If you’re building a business with legacy in mind, it’s time to think beyond profits and portfolios. One of the most overlooked wealth-building strategies is also one of the most powerful: legally paying your children through your business.
Done right, this move can reduce your taxable income, teach your kids financial literacy, and plant seeds of generational wealth—all while staying 100% compliant with IRS guidelines.
Let’s break down how it works, why it matters, and how to do it the smart way.
Why Pay Your Kids Through Your Business?
• Tax Savings: Wages paid to your child are a deductible business expense. That means you lower your taxable income while shifting income to a lower tax bracket (your child’s).
• Financial Education: Kids learn how to earn, save, and invest from a young age.
• Legacy Building: You’re not just giving money—you’re transferring skills, mindset, and ownership.
• Retirement Planning: Kids with earned income can contribute to Roth IRAs, setting them up for long-term growth.
This isn’t a loophole—it’s a strategy rooted in tax code and legacy logic.
IRS Rules You Must Follow
To stay compliant, you need to treat your child like a legitimate employee:
1. Age Matters
• Children must be at least 7 years old to perform meaningful work.
• Younger children can be paid for modeling or promotional use (e.g., appearing in ads).
2. Real Work, Real Pay
• The work must be necessary and appropriate for their age.
• Examples: social media help, filing, graphic design, product photography, packing orders.
• Pay must be reasonable for the task—no $1,000 for licking envelopes.
3. Document Everything
• Create a job description.
• Track hours worked and tasks completed.
• Issue paychecks or direct deposits.
• File W-2s or 1099s depending on structure.
4. Use the Right Business Structure
• Sole proprietors and LLCs taxed as sole proprietors can pay children under 18 without FICA taxes.
• Corporations must withhold payroll taxes regardless of age.
How Much Can You Pay?
In 2025, the standard deduction for a single filer is $14,600. That means your child can earn up to that amount tax-free—and you get the deduction on your business side.
That’s $14,600 of income shifted from your tax bracket to theirs, legally and strategically.Where Should the Money Go?
• Roth IRA: Tax-free growth for decades.
• Custodial Account: For college, business, or investment.
• Savings Account: Teaches budgeting and delayed gratification.
• Business Buy-In: Let them invest in the family business or start their own.
Real-Life Examples
• A photographer pays her 12-year-old $500/month to assist with shoots and edit reels.
• A handyman pays his teen to manage scheduling and client follow-ups.
• A coach pays her daughter to appear in branded content and help with email marketing.
These aren’t just chores—they’re business roles with real value.
Final Thoughts: Don’t Just Build Wealth—Transfer It
Paying your kids through your business isn’t just about tax savings—it’s about legacy. You’re teaching them how to earn, how to manage money, and how to participate in the family’s financial ecosystem. You’re turning your business into a classroom, a bank, and a bridge to generational wealth.
At Tomorrow’s Money Gains, we help entrepreneurs build systems that scale—and that includes strategies that empower your family. Whether you’re saving your first $5K or setting up a Roth IRA for your 10-year-old, we’ve got you.