This Genius Parent Trick Could Save You $12,550

Got kids? Got a side hustle (or thinking to start one)?

Great! You've got the recipe to save $12,550 a year in taxes -- per kid. 

How? So glad you asked...

By hiring your child to do work for your business.

The wages you pay them are a deductible biz expense. For most states, you can pay them up to $12,550 a year and owe no federal income tax.

(Check the laws in your state, or ask an accountant. To get an accountant’s view read this article.)

But wait, you say, I'm working on a family business to make money, not spend more hiring my child!

And this is why so few families take advantage of this simple tax break...

... because you're already paying your kids.

AND you're getting taxed on it.

It's true!

Are you buying your kids clothes? Do you take them out to eat when they've been good? What about toys, games, or supplies for school activities?

That all comes out of your wage, that you do not expense, and pay full taxes on.

Now, what if your kids had their own money, that they earned, and bought those things themselves? It wouldn’t cost you, would it? No! You’d be saving.

That’s how you should think about it.

Take your money and instead of directly handing it to your kids, pay them for work instead, get a business deduction, and then teach them how to manage their own money.

They win, you win, the family economy wins!

Let me run you through a GEM of an example...

Imagine you've got a side hustle driving Uber a few hours a week (it could be Etsy, a lemonade stand, blogging - you name it!).

Wage Deductions: Let's say you pay a car washing service $50 a week. Now, imagine paying your child the same amount instead of some outside company. That $50 becomes a deductible business expense, potentially saving you thousands annually.

Or, imagine you spend $50 a week for things your kid wants. Instead of giving it, ask them to work for it related to your budding business, train them, make sure they know the value of a good job, pay them a fair wage for time and deduct the expense.

The Child's Tax Bracket: Here's where it gets even juicier. If your child earns an income below the standard deduction for most states (around $12,550), they often won't owe federal income tax.

This means you get the deduction, and they possibly pay zero tax. Double win!

Avoiding FICA Taxes: If your child is under 18, their earnings are generally exempt from Social Security and Medicare taxes (FICA). So, staying below that $12,550 threshold? Even more savings!

As an added bonus, when you invest in your business, it lowers your earnings too. Less taxable income.

If you want to get really wild, you don't need to pay your child and just put it in a savings account either. You could open a Roth IRA instead and put their wages there!

Imagine having a retirement account when you were 10! Most people won't start contributing until their mid to late 20's, and by that time your kid is a decade ahead. Hello early retirement!!

I know, doesn't sound legal does it?

You need to follow some simple steps:

1. Ensure the work they're doing is age-appropriate and genuine. Most states agree children under 7 aren't qualified to do meaningful work.

2. Pay them a reasonable wage. It should align with what you'd pay someone else for the same job. You wouldn't pay someone $600 to wash your car, you can't pay your kid that just to save taxes.

3. Record everything. From the tasks they're doing to the hours they've worked. A paper trail is essential. A simple spreadsheet will do. Work they did, how much you paid. Done.

Most people will assume they can't do this because they need to be a "real" business. My first two businesses didn't make a profit (one didn't hardly even make revenue) for 1 - 2 years.

I still deducted what I invested. And the only person working in the business was me (no kids at the time).

They were both real businesses. 

Just open a business checking account with your current bank. Should cost the same as your personal, and it's all in the same account so it's easy to manage.

Get an EIN number free from the IRS right here. 

You don't need to file for an LLC, or register a company. As a sole proprietor, you don't need it until the business grows.

And yes, just that. You + a free EIN from the IRS + a checking account lets you hire your kids on a business idea you’re trying out.

When Dr. Greg Reid interviewed 100 billionaire families one consistent habit all families had was mastering the tax code. Not cheating, or stealing, but maximizing it like it was their job because, let's face it, most of us pay 30% in taxes from our W-2.

Enough to be a full-time job!

This isn't just about tax savings; it's about imparting life lessons, building financial literacy, and setting your child up for a future of financial independence.

Like having a retirement account at age 7.

To a brighter financial future for the whole family,
Rob

P.S. The early bird gets the worm, and in this case, the earlier your child starts, the bigger their financial nest egg. Let's set them on the path to success!