As a business owner, you’ve likely explored countless ways to reduce your tax burden while building long-term wealth. But one strategy that often gets overlooked is hiring your own children.
Yes, it’s legal. Yes, it’s IRS-approved and yes, it can be a win-win for both your family and your business.
At AmeriEstate Legal Plan, we regularly speak with family business owners who want to pass on more than just assets, they want to pass on values, responsibility, and financial literacy. Hiring your children can help accomplish all three. And when combined with proper estate planning, it becomes a powerful tool for generational wealth building.
Why Hire Your Children?
The IRS allows business owners to legally employ their children and offers some great tax advantages for doing so, especially if your business is set up as a sole proprietorship, single-member LLC, or a partnership where both partners are the child’s parents.
Here are a few key benefits:
- Tax-Free Income for Your Kids
In 2025, your child can earn up to $14,600 (the standard deduction) without owing federal income tax. - No Payroll Taxes for Younger Kids
If your child is under 18 and your business is a sole proprietorship or a partnership between parents, you don’t have to pay Social Security, Medicare, or federal unemployment taxes on their wages. - Business Deduction for You
Their wages are a legitimate business expense, which reduces your taxable income. - Opportunity to Fund a Roth IRA
You can open a Roth IRA for your child and start teaching them about investing and retirement—potentially setting them up for a million-dollar future.
But the IRS Has Rules. Make Sure To Follow Them Carefully
You need to treat your child like a real employee:
- They must do legitimate work that’s age-appropriate.
- You must pay a reasonable wage for the tasks performed.
- Keep accurate timesheets and issue a W-2.
- Pay them from your business bank account, not cash.
- Make sure you comply with child labor laws in your state.
- In other words, treat it like a real job—because it is.
So how does this tie into estate planning?
Hiring your kids isn’t just about tax savings, it’s about family legacy. When you bring your children into the business and give them responsibility, you’re not only teaching them how to earn money you’re preparing them for the future.
That’s where your estate plan becomes critical
- If you own a business and something happens to you, will your children inherit it? Will they know what to do?
- Are you protecting the income and assets you’ve worked so hard to build?
- Have you documented who should take over your business, your finances, or your healthcare decisions?
Whether your children are working for your company or simply benefiting from its success, they need the protection and guidance that a living trust and other essential documents provide. Without it, your business and your family could face unnecessary legal battles, tax issues, or disputes during an already difficult time.
Whether you're just starting to explore hiring your child or you're deep into succession planning, we’re here to help you build and protect your legacy.
Schedule a Free Estate Planning Consultation.
Disclaimer: The tax benefits of hiring your children can vary depending on your business structure and personal financial situation. Please consult with a qualified CPA or tax advisor before implementing any employment or compensation strategies for your children. AmeriEstate Legal Plan does not provide tax or accounting advice.
