If you’ve ever thought about putting your kids to work (on the payroll, that is), here are practical tips and some fun stories that might just inspire you to take the plunge. You could end up saving money and setting up your kids for financial success down the road!

Hey there, and welcome back to the "Empowering Entrepreneurs Podcast" with Glenn Harper and Julie Smith! This episode gets into something a lot of business owners have wondered about, but maybe haven’t really dug into—can you actually pay your kids for helping out in your business? And what does that mean for your taxes?

Glenn breaks down all the nitty-gritty IRS details and shares some smart ways to shift income, save on taxes, and teach your kids about money at the same time. Plus, Julie Smith adds her take on the real-life lessons kids get from rolling up their sleeves in the family business.

This episode is brought to you by PureTax, LLC. Tax preparation services without the pressure. When all you need is to get your tax return done, take the stress out of tax season by working with a firm that has simplified the process and the pricing. Find out more about how we started.

Key takeaways for business owners:

• Tax-smart payroll: Paying your kids through your LLC or as a sole proprietor can offer major tax advantages, as you may avoid the extra 15% in employment taxes that corporations require.
• It's not just about taxes: Beyond dollars and cents, bringing your kids into your business teaches them real-world financial skills, from how payroll works to the power of compounding through Roth IRAs.
• Documentation and legitimacy matter: The IRS requires any payments to be reasonable for actual work performed—think marketing help, filing, or even social media management. Keep it legitimate!

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Glenn Harper, CPA, is the Owner and Managing Partner of Harper & Company CPAs Plus, a top 10 Managing Partner in the country (Accounting Today's 2022 MP Elite). His firm won the 2021 Luca Award for Firm of the Year. 

An entrepreneur and speaker, Glenn transformed his firm into an advisory-focused practice, doubling revenue and profit in two years. He teaches entrepreneurs to build financial and operational excellence, speaks nationwide to CPA firm owners about running their businesses like entrepreneurs, and consults with firms across the country. Glenn enjoys golfing, fishing, hiking, cooking, and spending time with his family.

Julie Smith, MBA, is a serial entrepreneur in the public accounting space. She is the Founder of EmpowerCPA™, Founder of PureTax, LLC, COO for Harper & Company CPAs Plus, and Co-host of the Empowering Entrepreneurs podcast. 

Named CPA.com's 2021 Innovative Practitioner of Year, Julie led Harper & Company's transition to an advisory-focused firm, doubling revenue and profit in two years. She now empowers other CPA firm owners nationwide through consulting and speaking, teaching them how to run their businesses like entrepreneurs. Julie lives in Columbus, OH with her family and enjoys travel, coaching basketball, sporting events, and the occasional shopping spree.

Copyright 2026 Glenn Harper

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Hello everyone. Welcome to another edition of the Empowering Entrepreneurs Podcast. I'm Glenn Harper.

Julie Smith.

What's going on, Ju, you know, another.

Day we talk about gratitude. So I think we could really pivot into something really exciting, really exciting. And you know, maybe people have a lot of curiosity around it. So why don't you tell us a little bit about. You've mentioned it several times on the podcast, but we've never really took a deep dive into it.

So.

So let's jump off the diving board.

I'm always ready for that.

And let's talk about putting your kids on payroll.

Ah, the elusive income shift. Yes, there's a lot of good stuff out there and a lot of bad stuff out there of how you do it and the why and the how. And one of the things is, is that generally if you're in a higher tax, a high tax bracket, we're always trying to figure out tax strategies to help you lower your taxes. And so what happens with the irs, the rule for a deduction is it has to be the int intent, ordinary, necessary and reasonable. Those are the four tests. Right. So if the intent is, well, how can I pay my kids income shift to do work for the company? How do I do that? So I can deduct that money that I pay to the kids and they take that as income but they make it so little that they don't pay tax on it. How does that strategy work? That's your question, I think.

Right. And so great intro. Yes. So how that works is ultimately there's a special rule in the IRS tax code that yes, you can pay anybody who works for you that but if you're paying your kids through a corporation or an S corp, when you pay them, you have to treat them like a regular employee where you have to withhold Social Security and Medicare tax and the unemployment, all the things depending on the state, whatever. And so yeah, your income shifting, but you're still incurring that extra 15% self employment tax that you got to pay and withhold on the kids. So you're not getting the full benefit of paying your kids. So let's say for example, you pay your kids say 8,000 bucks for the year. If you pay it through a corporation, you write the check and run through payroll, they're going to net whatever, you know, 70, 85% of that is what the kid's going to get.

And you deduct it, the kid takes it as income and they don't pay tax on it because it's under the exemption Amount, which is really nice. The kid then can also, if they want to, they can take that money that they earned and they can put into their own Roth ira. Imagine if you started doing that when you were, you know, your parents start doing that when you're 5, 6, 7, 8, 9, 10 years old and just put a nominal amount in there. What that could grow to by the time you retire into a Roth ira, it's, it's fantastic. But a better strategy that we like to use is if you're paying your kid through a LLC partnership or a single member llc or if you're just a plain old schedule C self employed person. If you pay your kid through there, you don't have to withhold and pay Social Security tax or Medicare tax for the kid and no employment taxes. So now you not only get to deduct the $8,000 say that you pay to your kid, but you also don't have to pay the extra 15% tax on that. So you get a full deduction of $8,000.

So if you're in the, call it the 40% bracket with federal, state and city and you pay your kid $8,000, you literally get an $8,000 deduction. 8,000 times 40%, what is that? Do the math. You get the, you need a calculator. I know it saves you $3,200 in tax. The kid puts it on. You know, they may not have to file a tax return even, but let's assume they do. You put that on their tax return, they put $8,000 on, they pay no tax whatsoever. So now you can successfully pay your kid to do that and you just saved 300 bucks in tax on paying your kid.

Now the key is you just can't throw money at your kid and go, hey, I'm going to pay little Johnny whatever you have to. They have to have a business purpose of what they are doing. So maybe they're doing some filing in the office, maybe they're doing it help you with a marketing campaign and you're paying them as a model to kind of be on your web page and do all your propaganda materials that you do. Maybe they're in there just doing some. Again, if they get a little older, how old does the kid have to be before they know how to work the Internet and social media? I feel like five or six. But if they're in charge of your social media calendar and they take care of that, if you're going to pay somebody to do that, why not pay your kid to do that? And it's got to be legit and do it. Maybe they're on your board of advisors. Like everybody has a little family office.

So there's different strategies. It's not one for everybody. You have to make sure that you pick the right one for your circumstances. So work with your cpa, work with us, whoever that help you figure out what's the best way to legitimately, honestly, truthfully pay your kids so you can take advantage of the income shifting.

So what you're saying is that we should be mindful as we go into this year end as to maybe how our kids have contributed to our, our company, maybe what we've asked them to do. We, before we started, I was mentioning the kids had to come to the office this summer and they had a list of, you know, chores they had to do. One to, to let them know, you know, how we earn things and how this works and get used to an office setting. But I think to. That you're teaching your kids maybe multiple things as, as you have went through, you know, how to save, how to do this, how to do that. I think there's, we're talking about the payroll, but I think there's a lot more to it.

It's, it's way bigger than, because again, if you're, if you're really trying to help your child be successful in life, you're going to teach them how, what the fruits of their labor looks like, what it means to earn something. And you're going to start down that path and you're trading time for money, right? And they're going to learn that. But then what happens is if you sit down with them and they end up, you end up in the circumstances where you end up have the ability to put the money into their Roth for Roth ira, you now can sit with them and teach them how money works, how money makes money. And you can say, hey, look kids, what do you think we should buy a stock in this, in your little E Trade account? And we say, oh, you like, oh, you have an iPhone. Let's buy some Apple stock. Well, you, let's see how that works. Do you know how the stocks work? Do you know what dividends are? Do you know what capital gains are and how do that works inside this thing? And now you've changed this whole thing where your kid can really be engaged on how the world works with money because they don't teach it in school. They, nobody ever teaches it.

And most people don't understand how it works. They just go to work and do their thing. But this is a great way to start teaching your kids how money works. And when you start doing that, they're going to get engaged and they're going to be light years ahead of all their peers, because nobody else is really doing that for them. So what a great opportunity. It all starts with, oh, how can we save some money on taxes? Wait, how do we turn life lessons? And how do we teach kids about money? You. You're going to do all this stuff anyway. Why not just make a couple steps and it's going to work out for everybody.

Great advice.

Well, we like it, and it seems to work well for most of our clients that are have the ability to do that. And if you're not doing that, it's something that you should really explore. There's the right way and the wrong way to do it. You don't want to be the person that pays your kid 50 grand a year and they're 2 years old. How are you going to get away with that? That's just dumb. They are. We're not. We're not denying it, but there are.

You know, you have to do a bunch of testing to see what works the best way, because you want to be reasonable with what you do. Perfect. There you have it. Well, hopefully that's helpful for all of you watching and listening. And if it's something that it resonates with you, you know, please talk to your cpa, your advisor, and they'll certainly help you out with that. I'm Glenn Harper for the Empowering Entrepreneurs podcast.

Julie Smith.