Working for the family business can be a wise tactic for generating tax-savings. Many a business owner can convert their high-taxed income into tax-free or low-taxed income, by just paying children reasonable wages to do legitimate work.

1. What To Keep In Mind When Hiring Your Children To Work in Your Business
Working for the family business can be a wise tactic for generating tax-savings. Many a business owner
can convert their high-taxed income into tax-free or low-taxed income, by just paying
children
reasonable wages to do legitimate work. Here’s what to keep in mind
Ensure your child is a real employee
The kind of work for which you hire your child needs to match their ability. Younger kids could sort mail,
stuff envelopes and other simple tasks, appear in advertising material while older ones could take on
jobs like data entry or handling customer correspondence. According to the Internal Revenue Service
code you must be paying your children for a job that if they were not available you would be paying
someone else to do, just like a real job. It is also important to keep track of the work and hours your
children perform, and it may be a sound idea to have your child sign a written employment agreement
specifying his or her job duties and hours, of course these duties has to be business related.
Fix a realistic compensation
While it may be tax-wise advantageous to pay them as much as possible, it is important to ensure that
the pay rates are reasonable, and also keep track of time as carefully as you would with other
employees.
Abide by the Legal Requirements
It is essential to comply with most of the same legal requirements when you hire a child as you do when
you hire a stranger. You must have an Employer Identification Number (EIN), or apply for one by filing
IRS Form SS-4. You must also complete and file IRS Form W-2 showing how much you paid to your child.

2. The federal law, outlines what types of jobs, kids are allowed to do, and at what ages. There are many
states that add still more restrictions to the federal law, and thus it is essential to check with an expert
in your state labor laws, if there is any ambiguity regarding the same.
The IRS is well aware of the tax benefits of hiring a child, so it’s on the lookout for taxpayers who claim
the benefit without really having their children work in their businesses. If the IRS concludes that your
children aren’t really employees, you’ll lose your tax deductions for their salary and benefits. Take the
help of a tax consultant who can guide and also give you a number of tax planning tips.
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