As the owner of a small online business, one of the biggest questions you find yourself asking is “what can I do to save on taxes?” Trust me–I’m a CPA, and I hear it all the time.
Fortunately, it’s a question I love answering, especially because I sometimes get to surprise people with the answers I offer.
Among the many things you can explore and implement to save on taxes in your online business, one great possible strategy is hiring your child or grandchild as an employee.
Believe it or not, there are a number of benefits to having your child as an employee of your business. Yes, spending more time together is one of them…but it’s not the only one.
Why Hire Your Child or Grandchild for Your Online Business?
From a financial standpoint, the benefits of hiring your child in your online business are all about the tax savings. As a minor, a child is not required to pay Social Security and Medicare taxes and doesn't have to pay federal income taxes if they earn less than the standard deduction.
The standard deduction for 2019 is $12,200–unless you’re planning to pay your child $1000 per month, you should be in the clear. In other words, your child-as-employee earns tax-free income, which is good for them and great for you!
As their employer, delegating reasonable business tasks to your child counts as a business tax deduction, which means money saved on your tax return.
With all that said, it’s important to note that these benefits only apply when you are 100 percent the owner of your business, and the child you’re hiring is your own. If either of these things isn’t true, hiring children calls child labor laws into effect, so be careful.
The tax savings are a considerable benefit, but there are other benefits to hiring your child that you can’t put a price on. Specifically, teaching your child or grandchild the value of money, as well as the importance of working hard and the reward of doing a good job.
Hiring your child or grandchild in your online business offers unique benefits, but it also brings its own unique challenges. The key to setting your business and your child up for mutual success is correctly assessing what tasks your child is capable of doing.
An obvious question when hiring your child for your business is “how young is too young?” Many business owners are surprised by how many real business needs can be accomplished by even a young child.
Here’s a working guide to the types of tasks that can be performed by children at different ages:
Ages 5-7
- Empty Trash
- Sweep and Vacuum
- Shredding Paper
- Opening Mail (not processing)
- Age-appropriate cleaning duties
Ages 8-10
- Items in Ages 5-7 Group plus…..
- Organizing and stocking supplies or inventory
- Opening packages and breaking down boxes
- Packaging items for shipment to warehouse or customers
- Help demo products you sell (Easy win if your business sells toys!)
Ages 11-12
- Items in Ages 5-7 and 8-10 Groups plus…..
- Answering basic phone and email inquiries
- Doing simple computer tasks such as data entry
- Scheduling social media using pre-written social media posts
- Light graphic design using templates inside Canva or Snappa
- Light scheduling or calendar management (for the highly organized!)
Ages 13+ (at this age a child’s own interests and skills start to show)
- Everything in Ages 5-7, 8-10, and 11-13 Groups plus….
- Help to source items online or via retail stores for resale
- Basic Customer Service using Saved Replies or Billing Updates
- Manage Social Media and aid in Social Listening and Engagement
- Blog Post or Content Updates on website or client portals
- YouTube Channel updates and assists with video production and editing
- Product or Brand photography along with photo edits if needed
- Assist with Facebook Lives or Instagram stories
- Basic bookkeeping and administrative duties such as filing, etc.
- Metric reporting updates using Report Templates and guided SOPs
- IT support and basic computer maintenance, setup, or troubleshooting
- Online shopping or if able to drive, running errands as needed for the business
No matter the age, whatever your business needs after evaluating if your child can do them, it’s important to pay them accordingly. Be cautious not to pay them too much, but don't pay them too little.
When paying your child or grandchild, fair market value for the level and quality of work based on their skills and experience is a great rule of thumb. Remember, part of the process is to teach your child the reward of hard work. They need to experience that reward for themselves.
Setting Your Child (And Your Business) Up for Success
A lot of people wonder what they should pay their child when they hire them. But my first advice is that whatever you choose to pay your child, don’t set it up as pay per hour.
Not only is this a sure way to muddy the waters between contractor and employee, but it protects the business from overruns and mistakes that cost hours and therefore money.
You also may need to check with your insurance company to ensure that the policy you have will cover any errors/losses incurred if your child makes a mistake large enough to impact the business.
When it comes to setting your child up for success in their new role as your employee, the key is to treat him or her as a real contractor whenever you’re interacting within the business context.
It’s important to treat the relationship like a business relationship. You can’t bring your parenting skills into your role as a boss.
Be very clear from the outset on what the child or grandchild’s expectations and responsibilities are, and keep those things consistent, no matter what,
Would you criticize what a regular employee chooses to wear (unless you have a dress code) or expect them to do tasks beyond their skills, experience, or capabilities?
For these reasons, I recommend creating a document that outlines what the child’s scope of the work is, what the pay structure is and how the payments will be made.
Make sure you sign the document, as well as the child or grandchild being hired. When you’re in the work environment, keep your feedback limited to work. Save the “Are you really…….?” conversations for when business ends and home time begins.
Children will be children and sometimes they don't want to listen to their parents. Sometimes, parents can have a harder time holding their children accountable. If either of these scenarios become an issue, you may have your child report to someone else besides you if possible.
Keep the boundaries clear and strong, and the situation will be good for all involved.
The Bottom Line
Children are sponges when it comes to how they learn. Hiring your child for your online business can help them begin developing invaluable skills of saving/giving, as well as a strong work ethic and the benefits of not expecting instant gratification.
The kind of training working in your business could bring early in life can make financial life as an adult less troublesome when this area of their life is discussed and worked on.
An early experience of working can also kickstart your child’s self-discovery–by working in your online business, they can learn about their own skills, develop their interests, and start figuring out what kind of professional goals they’d like to pursue.
