Everyone knows you can generally claim your children as dependents on your personal tax return, but there may be a way to also deduct them as a business expense.  Put them to work!  That’s right, hire them as an employee if you own your own business.  Just remember, the work performed needs to be necessary to the business.  You might need that company car washed or someone to run to the post office every day, or go pick up office supplies.  If it would be reasonable to pay someone else to perform these tasks, you can pay your child to do it.  But be careful that the job is reflective of the child’s age.  You may pay your computer savvy 17 year old to design a website.  But you wouldn’t have your 8 year old do the same task.

Just remember to treat your child as you would any other employee.  This means setting a schedule, punching a time clock or sending them to training courses.  Their compensation must also be reasonable and consistent with what you would pay an outsider.  And as always, keep good records.

Not only can you deduct the wages paid to your children, but in certain instances you can also save on payroll taxes.  This means they take home more money in their paycheck and the business may not be required to pay Social Security and Medicare taxes (FICA).  Further, it’s a great way to shift income from your higher tax bracket to your child’s lower tax bracket and they may not even be required to file a tax return.  It’s also a great way to jump start their retirement by putting money away into an IRA.