Here is a move that moves real money and is completely above board: hire your own child. Not on paper, on an actual paycheck, for actual work. Done right, it shifts income out of your tax bracket and into one where the tax rate is zero, hands your business a deduction, and, if the facts line up, skips payroll tax entirely. It is one of the few strategies that is both aggressive in effect and boring in the eyes of the law.
The catch is that “done right” is doing a lot of work in that sentence. This is a move people botch constantly, usually by treating it as a number they want rather than a job they fill. So here it is the way we actually set it up: the mechanics, the paperwork, the line you cannot cross, and the payoff at the end.
The engine is bracket arbitrage. When your business pays your child a wage for real work, three things happen at once. The business deducts the wage as an ordinary expense, which comes off income that would otherwise be taxed at your rate. The child reports that wage as earned income. And a child whose only income is a paycheck can earn up to the standard deduction, $16,100 for 2026, before owing a single dollar of federal income tax.
So a dollar that would have been taxed in your bracket lands, untaxed, in theirs. You did not give money away. It stayed in the family. You simply stopped routing it through the highest-taxed hands in the household.
A dollar taxed at your rate becomes a dollar taxed at zero, and it never leaves the family.
There is a second engine, and it is the one people forget. If your business is a sole proprietorship, or a partnership where the only partners are the child’s parents, wages you pay your own child under age 18 are exempt from Social Security and Medicare tax. Under 21, they are exempt from federal unemployment tax too. That is not a loophole someone found; it is written directly into the payroll tax rules. No FICA on either side means the wage is not shaved down on its way out, and the deduction is worth full freight.
Give them a real job. This is the whole ballgame. The work has to be legitimate, age-appropriate, and something the business actually needs done: filing, data entry, shredding, packing orders, running the camera and editing footage, managing the inbox, cleaning the shop. A seven-year-old cannot plausibly do your bookkeeping. A teenager can absolutely run your social media. The test an auditor applies is simple: would you have paid an unrelated person to do this? If yes, you are on solid ground.
Pay a reasonable wage. Reasonable means what you would pay a stranger for the same work. Paying your twelve-year-old $40 an hour to shred paper is the fast way to lose the whole arrangement. Pay a defensible hourly rate, tied to the actual hours worked, and let the total land where it lands. If that is $6,000 for the year, it is $6,000. Do not reverse-engineer a big number and invent hours to justify it.
Keep the paper. Treat your kid like any other employee, because for tax purposes that is exactly what they are. That means a timesheet or log of hours, a W-4 on file, a real paycheck moving from a business account to an account in the child’s name, and a W-2 issued at year end. Run them through payroll like everyone else. The documentation is not busywork; it is the difference between a strategy and a story you tell after the fact.
The payroll tax break has a hard boundary, and it is the one most owners trip over: it only applies to sole proprietorships and parent-only partnerships. If you run an S corporation or a C corporation, the FICA exemption is gone. Your corporation withholds Social Security and Medicare on your child’s wages exactly as it would for any employee. The income-shifting benefit still works, because the child’s standard deduction does not care about your entity type, but the “no payroll tax” part does not survive the corporate wrapper. If you have heard otherwise, you heard a sole-proprietor strategy described without the fine print.
Two more guardrails. The wage has to be for services actually performed, not an allowance with a payroll label stapled to it, and the amount has to stay reasonable for the work. Everything that makes this powerful also makes it fragile: the moment the job is fake or the pay is inflated, it stops being a deduction and starts being a flag.
Run cleanly, the move does more than trim this year’s bill. Because your child now has earned income, they can open and fund a Roth IRA, which means money going in at a zero percent tax cost and, decades from now, coming out tax-free. That is one of the best deals in the entire code, and most people cannot hand it to a fourteen-year-old. You can.
And there is the part that does not show up on a return. The kid learns that money is earned, sees a paycheck with their name on it, and starts a savings or investment habit years before their peers. The tax savings are real and immediate. The rest compounds quietly for thirty years. Not a bad return on a summer of filing and shredding.
Hiring your kids works beautifully when the job is real, the wage is defensible, and the paperwork holds. We build it that way from the start, matched to your entity so you keep every break you are actually entitled to and none you are not. If this fits your business, it is worth a conversation.
See if we’re a fit