Assume that you are in the 24% Federal tax bracket (you would be if you had taxable income above $165K if married-filing-jointly). If your small-business employs your child and pays that child $10K, then you get to deduct $10K at 24% and the child pays tax on that $10K at a 0% Federal tax rate. Your only cost is the 14% FICA tax paid on that wage if you are an S Corp. If you are a partnership or sole-proprietor, then you don’t have to pay FICA tax when you employ your children. Takeaway: Hire your child and save 10% if you are an S Corp and 24% (plus maybe another 14% SE tax) if you are a partnership or sole-proprietor on whatever you pay that child. In addition, the wage that you pay the child gives the child earned income which allows him or her to make a Roth IRA contribution. This strategy would also work if your children help in your rental business (i.e., mow the lawn).
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