A Legal Tax Strategy Most Families Don’t Know About
If you’re a business owner, freelancer, or side-hustler, you’re probably looking for tax deductions that are simple, legal, and impactful. One of the most overlooked strategies is also one of the easiest:
–>Hire your kids in your business and deduct their wages.
This isn’t a loophole — it’s IRS-approved.
Done correctly, it can save your family $3,000 to $8,000 per year, per child, while teaching your kids valuable work skills and helping your business grow.
Let’s break down exactly how it works in 2026.
How Much Can You Pay Your Child Tax-Free in 2026?
In 2026, a dependent child can earn up to:
->$13,850 tax-free
This is thanks to the standard deduction.
If your child earns less than this amount:
They owe no federal income tax
You get to deduct their wages
And the money can stay in the family
This is one of the most powerful family tax strategies available to small business owners.
Who Qualifies? IRS Rules You Must Follow
The IRS allows you to deduct wages paid to your children if these requirements are met:
1. The work must be legitimate
Your child must perform real business tasks, such as:
Filing papers
Social media content
Cleaning or organizing
Data entry
Packing orders
Modeling for product photos
Customer service assistance
Menu photography (for restaurants)
Inventory prep
Shredding or scanning documents
(For Jacobwise & Co. clients, we help you choose tasks appropriate for your business type.)
2. The pay must be reasonable
You must pay your child fair market wages for the tasks.
Example:
If you’d pay another person $15/hour to complete the same work, you can pay your child the same rate.
3. The child must actually do the work
Keep simple records such as:
Timesheets
Job descriptions
Photos or files of completed work
4. Payments must be documented
You must pay your child with:
A real check or
Direct deposit
Cash payments cannot be deducted.
Do You Need Payroll? It Depends on Your Entity Type
Here’s where many get confused — the rules change based on your business structure.
If you’re a Sole Proprietor or Single-Member LLC
You do NOT need to withhold:
Social Security
Medicare
FUTA (Federal Unemployment Tax)
This means 100% of your child’s check goes to them, and YOU get the deduction.
This is the most tax-efficient way to hire your child.
If you’re an S-Corp or C-Corp
Payroll rules change:
You must withhold FICA (Social Security & Medicare)
FUTA may apply
Standard payroll rules apply
But it’s still absolutely worth it, especially when paired with a Roth IRA.
(Jacobwise & Co. can set this up for you.)
Bonus Strategy: Use Your Child’s Income to Fund a Tax-Free Roth IRA
If your child earns W-2 income from your business, you can open a Roth IRA for minors.
Contribution limit in 2025: $7,000
Imagine $7,000 growing tax-free for 50 years…
Even at a modest 8% return, it becomes:
->$781,000 tax-free
This is generational wealth using money you would have paid in taxes anyway.
Creative Ways Your Child Can Help Your Business
Depending on the age of your child, here are compliant activities:
Ages 6–8
Modeling for photos
Packing supplies
Shredding documents
Organizing office space
Ages 9–12
Social media assistance
Website help
Inventory prep
Filing & document scanning
Ages 13–17
Editing videos
Customer service help
Data entry
Managing social media pages
Content creation
There is no minimum age in IRS rules — as long as the work is age-appropriate.
Example Calculation: How Your Family Saves Money
Let’s say you pay your child:
$10,000 in 2026
Your child owes:
➡️ $0 in federal tax
You save:
➡️ Your tax rate (say 22%) = $2,200 savings
➡️ + payroll tax reductions
➡️ + money stays in the household
➡️ + no tax on child’s income
If you normally pay for:
School supplies
Clothing
Phones
Activities
Food
Gas
Sports
…You can legally shift those costs to business-paid payroll.
Mistakes That Will Get You Denied by the IRS
Avoid these:
Paying your child for work they didn’t do
Not keeping timesheets
Paying cash instead of payroll/direct deposit
Paying too much for the type of work
No job descriptions or documentation
Not paying from a business bank account
This strategy is 100% legal —
you just have to follow the basics.
How Jacobwise & Co. Helps You Do This Properly
We can handle the entire process:
✔ Set up the payroll correctly
✔ Create a compliant job description for your child
✔ Build an IRS-approved file for documentation
✔ Ensure your bookkeeping reflects the deduction
✔ Advise on using a Roth IRA or 529
✔ Structure entities to maximize benefits
Most clients save $3k–$12k every year using this strategy alone.
Call to Action — Add This Strategy to Your 2026 Tax Plan
Hiring your children is one of the most powerful tax strategies available — but most families never use it.
–>Let Jacobwise & Co. set this up for your family.
Book a consultation at: www.jacobwiseco.com
Or call: (407) 519-6258