If you're in the run. Over in the run. Over paying their kids for work that they may already even be doing. If they're not doing it, we're gonna show you how to do it. Hey, my name is Steven Young, host of the Savvy or Surrender Podcast. And in today's episode, we are going to talk about paying your kids to work for you in your business and how you can write it off and what the difference is between paying a kid versus paying a regular employee and why there's actual tax savings there. But this is a fantastic way to build generational wealth in your business. Last episode, we talked about the Trump account and Roth IRAs and things like that. Well, here's a great way where you can have, you can pay your kids, but also be able to take advantage of uh you know increasing generational wealth because you're gonna put some of that money in a Roth IRA for them now that they haven't earned income. So we're gonna get through all the questions, figure out whether it makes sense for you, how what it takes to qualify. Again, my name is Steven Young, host of the Savvy Your Surrender podcast. And I would love if you would like this video, follow it, uh, you know, subscribe, do what uh all those things, check us out on podcasts. We got Apple Podcasts and Spotify. You can go to savvyyoursurrender.com and watch the episodes there. So anything that you know you can do for us, if if you uh you want to leave a review, that would be fantastic. I would love a five-star review from you, or just send us an email and give us some feedback at podcast at savvyyoursurrender.com. I'm sorry, podcast at savvytackstrategies.com. Okay, so here's the way we're gonna set this up. Now, the first disclaimer is the kids must be under the age of 18. So they have to be pretty much from seven to 17. Can they do it younger? Yes, they can. There's I've seen things with modeling fees. I had a plumber one time that he took a picture of his kid in the bathtub and and you know, advertised that on the back of the trucks or whatever. So, yes, it's possible. Uh, is it the norm? Definitely not, right? Definitely uh age seven is where the IRS court case came in and said that they could start working for you. So at age seven, I started having my seven-year-old at the time uh work for me, shredding papers, doing things like that. So we're gonna get into the different things that they can do and how you have to document it and record it to make sure that you are safe. So this is completely legal. It is in the IRS code that shows you that you can do this as long as you're a sole proprietor or an LLC. And the big thing is here, you don't have to pay FICA. You don't have to pay the Social Security and Medicare tax on a child under the age of 18 that's working for your business. So this is very powerful when done correctly, and it's very dangerous when done wrong. So we want to make sure that this is done correctly. Now, the reason this is working is because you're shifting your income from a higher tax bracket to a lower one. Your kids are going to be in a lower tax bracket or no tax bracket than you are. You convert your business deductions into family wealth. Again, as I said, I started doing this with my son, and when I pay him, now I have him pay for his taekwondo lessons. So his taekwondo lessons, currently, I think it's$175 a month, plus we have tournaments and things like that on occasion. I have him pay for that out of his account. And then also we have a Roth IRA for him now because he's got earned income. So you can start funding those Roth IRAs earlier. There's no age limit to starting a Roth IRA. The challenge is do they have earned income? Well, if we can get this earned income going, we can get the Roth IRA going. Trump accounts might help with that now, but those are new. We don't know much about them yet. And not to mention the political factors. For some people, that's an issue too. Here with the Roth IRA, we've got it going. You also get to talk about uh work ethic and financial literacy with your kids, which is missing so badly in our kids these days, I feel like. And in, you know, we always talk about like the old days or whatever. I went to work with my dad. I learned a strong work ethic because of my dad. I didn't learn financial literacy so much, quite honestly. My dad was blue-collar, he didn't know that kind of stuff. You know, he was a landscaper. And that's fine. I'm definitely not critiquing it. I'm just saying it also wasn't in my high school or in, you know, in in schooling until I went to college specifically to take finance classes. So here's an opportunity for you to really show your kids the value of one work, but two, investing in saving money in the future and being able to grow that money and being able to retire with a lot more money or even using it beforehand. You can use a lot of the Roth IRA monies for different things. Um, you know, you don't necessarily have to take it out for if you don't take out the earnings, it's tax-free. So you can buy your first house or whatever it might be. So this isn't simply about saving a few bucks. This is about tax arbitrage, honestly. It's about moving money, decent amount of money from your business into your kids and doing other things with it. And then it's also about compounding, right? Albert Einstein said that one of the great things is the power of compounding and moving your money from, you know, waiting until you're you're 50 to start investing in retirement, if you're doing it at 15, you're got a lot of time there to be able to have that money compound. And then it's also intentional legacy building. I talk a lot about that because if you have a business and if your only goal in business is to just simply get back to zero so you don't pay any taxes at the end of the year, I believe you're doing it wrong. That's not the goal of building a business and creating something. It's truly about helping your family create legacy and generationally building. So let's get through the basic rules of investing or in of uh paying your kids. The child must do legitimate work. They must be paid reasonable compensation for it. So if you have an assistant or if you were to hire an assistant to shred the papers or to write up an email, whatever that might be, you have to you know you're gonna pay them$20 an hour. Well, that's what you have to pay your kid too. You can't pay your kid uh$200 an hour because you're trying to maximize how much they are getting paid. So they have to do legitimate work and you have to pay them a reasonable compensation, something that you would pay somebody else to do. If it's your teenager doing social media work, look and see what social media people get paid. I can tell you it's a pretty good amount of money. You know, a couple thousand dollars a month for somebody that's just working as a contractor for you is not unreasonable. So they actually must perform the services for the business. They have to uh, you know, actually be doing the work, right? And not just say, well, yeah, they they shredded those papers. Yeah, they cleaned the office, yeah, they took out the trash and they didn't ever actually show up at your office. That can be a problem. And they have to be paid like an employee, not just some Venmo transfers or not just giving them cash. You want to set them up like an employee. Now, do they have to be on payroll? No, they don't have to necessarily be on payroll. You could pay them like an outside contractor or 1099 or something like that if you wanted to, but you do need to track it. You've got to track the hours. You want to, again, run the payroll correctly, however, it is you do that. Whether they're an independent contractor, you set them up on W 2. If you're gonna do the Roth IRA option, you're gonna wanna set them up on W 2 so that you can prove that earned income. You just make sure that you don't pay any taxes on it, you don't pay the Social Security and the Medicare. And then you wanna issue the proper tax forms, right? If you're doing that, they're gonna get a W 2 at the end of the year. You wanna keep all of this documentation. This is where a lot of people mess it up because they don't they don't track the hours, they don't track what they did. You want to have this documented somewhere so that in the event you do get audited, you can prove that you did this all correctly. Now, entity structure matters. As I mentioned, in the IRS code, it specifically says sole proprietors and single member LLCs with no corporate election, meaning you're not already an S-corp. So how do we get around that? Let's talk about that here in a second. Your child has to be under 18, there's no Social Security tax, there's no Medicare tax. That's how the law reads. There is still withholding tax, but that being said, as long as they stay under the federal standard deduction of$15,000, you're golden. You don't have to worry about what to do with because with the federal withholding, they're not gonna have to pay that either. Uh so keep them under the$15,000. Now your state might have a different withholding, so you may end up having to pay state taxes. You want to check into that and see what your the standard deduction is. I'm in Idaho, Idaho fat follows federal rules there, the standard deduction is the exact same. And for this year, it's actually$15,750 to be exact. Okay, now what happens if I'm an S-corp or some different type of entity? That same IRS rule doesn't apply. So here's the cleanest way to do that. Let's say in my business I'm I am an S-corp, but now I can't pay my kid directly and avoid paying the fet the Social Security and Medicare taxes. So what I do instead is I transfer the money that the cleaning service, the family management company, for my wife, who now is in control of it, has a separate checkbook. I pay her for the cleaning. And she does come in on the weekends and she'll help clean with my son and my daughter, who's only six, so she doesn't get to pay be paid yet, but she's turning seven here in a little bit, and I'll get her on payroll. So we have a family management company. They are the cleaners of my office. They clean, I pay them. My wife, then, who's the owner of the family management company, she pays the kids, and we transfer the money in a paycheck to the kids into their account, and then they're able to go and do whatever they want to do with it. Well, we manage what they want to do with it, right? So they want to pay for their taekwondo lessons, they want to pay for their swim classes, they want to invest in a Roth IRA. So we have all those things set up for them, and we show them, we talk to them about how that's working out. So they understand exactly what's going on with their money and what they're doing with it and how it's happening. So they're learning work ethic, they're learning financial literacy, all of those things that they normally wouldn't be able to get, now they're getting. So that's a huge advantage. Not to mention, of course, we're putting money in a to a Roth IRA that has all the retirement advantages that we've already talked about. So when if it's uh if you didn't do it that way and you just kept them as a as a S-corp or C Corp, payroll taxes are still gonna comply or still apply. There's more complexity involved. So that's why you can't just leave them there. You could, but you're not gonna have the same um opportunity as a you know, there's not as much tax advantage. Are you shifting it down to a lower tax bracket as far as the federal withholding? Yes, but you're still having to pay the Social Security Medicare. It's about 15.3%. So it definitely is not as advantageous that way. That's why we set up the family management company. Now, how much can you pay them? Again, what are they actually doing? If they're a teenager and they're doing social media work for you or camera work, you know, look it up, find out how much those people make. It's it's a good amount of money for what people do there. And so you can pay them what the average rate wage is for that type of work. Again, remember the standard deduction$15,750. So anything above that, they are gonna have to pay withholding tax on it. So we want to make sure that we stay there and show them a tax return. Do a tax return with them and have them learn that. Man, I can't tell you. When I did my first tax return when I was 15 years old, I was not happy. I owed the government money and and I don't know, maybe I didn't do it right or something, or the the the uh standard deduction was a lot lower back then. I don't know, but I just remember I owed the IRS like$150 because my parents claimed me and I had to do the taxes, yeah, I was not happy. But I filed my own tax return, and that kind of what got me started in doing taxes. So they could earn up to the standard deduction, not have to pay any federal withholding tax again. Check out your state to see where that is. But if you were able to shift$12,000 to$15,000 from your 32% tax bracket, if you're you know making that much money, into a 0% tax bracket. Think about how much savings you could have over time, right? It doesn't sound like a lot in one year, but if you did it every single year while that kid was from seven to seventeen, that's 10 years of shifting all of that money and putting some of it or all of it into a retirement plan. That's real money that's really being able to now invest into the Roth and really have this wealth-building opportunity for you. So again, to contribute to a Roth IRA must be earned income. Let's imagine you got$7,000 invested at age 10, 8% average return by the age of 65, just for those few years. That's over$200,000 at age 65 that they now have. So if you continue to do that, just imagine how much more that's going to really change, right? A 10-year-old could become a millionaire before they can even legally drink if you did it, if you set it up correctly. All right. So what could jobs could the kids actually do? Well, social media content I've mentioned, modeling for marketing materials. And again, this is where it gets kind of into the gray area under age of seven. Uh, they could do it, right? There's kids that model and and act all the time under the age of seven. So they could go and do it. You just gotta be careful with it. Don't go, you know, paying them a hundred thousand dollar market uh modeling fee for your real estate brochure, please. Office organization do it all the time. Filing, scanning, cleaning company vehicles, depending on if you're doing the standard or the actual deduction on the vehicles, cleaning could get uh could be a deduction for you if you're paying them to do that. Yard work at the business. If you own a separate business, I uh I knew a dentist that he had an office building where it had grass in the front, his kids went out and mowed it. Website testing and working on that, simple admin type tasks. Um, you know, again, uh uh shredding paperwork, that kind of stuff happens all the time. Here's the audit traps. Now, this is where you really need to be careful. Uh paying a six-year-old$25,000 a year is probably not going to work. No time tracking, no job description, no payroll system, no actual work, no photos or documentation or backdating payroll. Well, can we just say that they worked in 2025? Those are all areas where you could get into trouble if you're if you're going to try to skirt the rules. Just set it up correctly and then you don't have to worry about it. It's not a tax hack. This is a true tax strategy, and there's a difference here. So when doesn't this make not make sense? Well, it may not be right for you if you don't have consistent profit. If there's not enough money in the business to be able to pay yourself properly, let alone pay your kids, it may not make sense. If your bookkeeping's a mess, or if you're behind on taxes, it may not make sense for you to start the strategy just yet. Let's get you cleaned up and caught up and and then from there we can have you do, you know, uh start paying your kids. So we need to get that foundation laid first, right? And have it structured correctly. So, how does that all fit into the profit first system and and uh working with me at Savvy Tax Strategies? Well, we love to help business owners to be more profitable and to pay as little in taxes as possible as they want, depending on their goals in the future. Sometimes that involves paying more in taxes, right? It just depends on what you want to try to do. But that's one of the things we talk about in our tax planning blueprint is setting you up individually for what makes the most sense. We also do cash flow forecasting and setting up profit first and family wealth planning to a degree, right? Talking about the tax implications of it. I'm not licensed as a financial advisor, but I have some great ones that I can refer you to. So this isn't just about not paying payroll taxes either, right? Or payroll, but all over part of an overall larger tax strategy that I would love to help you with. So if that is something that makes sense for you, if you have a child between the ages of seven and seventeen and you want to try to implement this, I would love to talk to you. Go to meetwithsavvy.com and schedule a discovery call and let's see how we might be able to help you get this implemented. And again, I would love it if you would like, subscribe, uh, share this video. I uh nothing would make me happier than to get this information out to as many people as possible so that we can truly start changing the legacy, the financial destiny of more business owners and and more kids and set them up properly.