Hi, I’m Tim Mayclin, CPA from Rohnert Park, California. If you operate your business as a sole proprietorship, and you have children under 18 years old you can pay them wages. You get the deduction and don’t pay payroll taxes on that amount.
The kids won’t pay payroll taxes either, and if their income is low enough, they won’t pay any income taxes as well.
It’s a great benefit and it even allows you to put potentially some money into a Roth IRA for the children which means that can grow tax deferred until they’re 59-1/2, and they’ll never pay taxes on it.
It’s a great benefit for those that have sole proprietors and have children under 18. This does not work with LLCs that are partnerships, even if the husband and wife are the only owners, nor does it work with any corporations. It’s only sole proprietorships. If this situation fits your situation and you need more information, please contact your local CPA.