You’ve probably heard this one before:

“Hire your kids through the business and pay them tax-free.”

That can work.

But there are a few catches.

And the first one is probably the most important:

The entity matters

If you operate as a sole proprietorship — or a partnership where each partner is a parent of the child — wages paid to your child under age 18 are generally not subject to Social Security and Medicare taxes.

But if the business is an S-Corp or C-Corp, that payroll-tax exception generally does not apply.

So if your real estate business is already taxed as an S-Corp, you should not assume:

“My kid is under 18, so there are no payroll taxes.”

That is not how the rule works.

The work has to be real

This is where people get too aggressive.

You cannot pay your 8-year-old $30,000 for “consulting.”

The child needs to actually perform legitimate work for the business.

Depending on age and the business, that could include things like:

• Office cleaning
• Filing or organizing documents
• Inventory work
• Photo or video modeling
• Social-media content
• Basic administrative tasks
• Digital file organization

And the compensation needs to be reasonable for the work performed.

The question I would ask is:

Would you pay an unrelated person this amount to do the same job?

If the answer is no, the wage probably needs another look.

Treat them like an actual employee

If you are going to use this strategy, document it properly.

That means things like:

• A written job description
• Time records
• Regular payroll
• A reasonable hourly wage
• Form W-4
• Form W-2 at year-end
• A separate account for the child

I would not wait until December 30 and write one giant check for $15,000 with no time records and call it “marketing.”

The paperwork should match what actually happened during the year.

Where the tax benefit comes from

For 2026, the standard deduction for a single taxpayer is $16,100.

So depending on the child’s total income and filing situation, some or all of their legitimate wages may fall within their standard deduction.

Meanwhile, the business may generally deduct reasonable wages paid for actual services.

That creates the potential to shift taxable income from the parent’s higher tax bracket to the child’s lower bracket.

But again:

The wages still have to be real.

The Roth IRA may be the best part

Once your child has legitimate earned income, they may also become eligible to contribute to a Roth IRA.

For 2026, the IRA contribution limit is $7,500, or the child’s taxable compensation if that amount is lower.

Imagine your child earns $7,500 working in the family business.

You could potentially contribute up to $7,500 to a custodial Roth IRA for them.

Now give that money decades to compound.

That is where this strategy can move beyond just saving taxes this year.

You are also starting to build wealth for the next generation.

Here’s where people get this wrong

They hear:

“Pay your kids $15,000 and write it off.”

And stop there.

But the strategy is not:

Move money from your account to your child’s account.

The strategy is:

1. Give them a legitimate job.
2. Pay a reasonable wage.
3. Keep records.
4. Run payroll correctly.
5. Understand how your entity affects payroll taxes.
6. Consider using some of the earned income to fund a Roth IRA.

That is a very different thing.

The bigger point

Hiring your kids can be a very good tax-planning strategy for the right family business.

But it works because the child is actually working.

Not because the IRS gives parents a free $16,100 deduction for moving money around.

If you want to use the strategy, set it up correctly while the year is still happening.

Waqas “Vic” Hussain, CPA
Whitestone CPA
Based in Chicago. Serving clients nationwide.

P.S. This is the time of year when we start reviewing what can still be improved before December 31 — entity structure, compensation, retirement planning, real estate, estimated taxes, depreciation, and other planning opportunities.

That is the kind of work we do through ongoing tax strategy.

If you want a second set of eyes on this before year-end, reply to this email and I'll walk through what I'd want to review in your specific situation.