Imagine a strategy that not only saves you money on taxes but also sets your kids up for a lifetime of financial success. Sounds like a win, right? That’s exactly what you can do by putting your children on your business’s payroll. It’s not just about saving a few bucks today—it’s about leveraging the power of compound growth, financial education, and smart planning to give your kids a head start in life. Let me show you how.
Here’s the deal: when you put your kids on payroll, their wages are a legitimate business expense. That means you’re reducing your taxable income—right off the top—and shifting that income to your child, who is likely in a much lower tax bracket. For 2024, the standard deduction is over $13,000, so if your child earns less than that, they pay ZERO federal income tax. You heard that right—ZERO.
Now, this isn’t just a loophole. The key is to make sure your kids are doing real work—age-appropriate tasks that truly help the business. Think filing paperwork, managing social media, organizing inventory. The IRS is fine with this, as long as you’re paying a reasonable wage for the work they perform. And here’s where it gets good...
Here’s where you take this strategy to the next level: using their earned income to set up a Roth IRA. This is one of the smartest financial moves you can make for your kids because Roth IRAs grow tax-free. Once they’ve earned income from working for your business, they’re eligible to contribute to a Roth IRA. And here’s the magic of compounding: by starting at an early age—as young as 10-13—the money they invest can grow exponentially over their lifetime.
Let’s say your child contributes $5,500 to a Roth IRA at age 13. By the time they’re 60, that one contribution could grow to over $100,000, completely tax-free. Imagine the power of doing that every year—they’ll be financially ahead of 99% of their peers, and all it took was putting them to work a few hours a week in the family business.
This isn’t just about tax savings and wealth building—it’s about giving your kids something even more valuable: financial education. When they earn their own money and see it grow in a Roth IRA, they learn the value of work, the power of saving, and the importance of investing early. These lessons will set them up for financial independence and success throughout their lives.
Think about it—how different would your life be if you had started learning these lessons at 12 or 13? You’re giving them tools for the long haul, not just a paycheck. This is life-changing.
By paying your children a fair wage for their work, you’re not just hiring them—you’re keeping more money within your family. Instead of paying that income to someone outside the family or sending it to Uncle Sam in taxes, you’re transferring it to your kids in a tax-advantaged way. This is a strategic move that keeps wealth growing where it belongs: in your family’s hands.
Ultimately, this is about more than just tax deductions and Roth IRAs. It’s about building a legacy. You’re giving your kids the tools to thrive financially, but you’re also showing them what’s possible when you take control of your financial future. You’re teaching them to think like owners, not just employees, and that mindset shift is priceless.
If you’ve got kids and you’re a business owner, don’t wait on this. It’s one of the most powerful financial moves you can make for your family. You’ll save on taxes, set your kids up for a lifetime of financial success, and build a legacy that lasts for generations.
Take action now—because when it comes to building wealth, the sooner you start, the more powerful the results will be.
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