Hiring Your Child (or Grandchildren) for Your LLC: A Tax-Smart, Legacy-Building Strategy

Good Morning!

1. Feature: Hiring Your Child (or Grandchildren) for Your LLC: A Tax- Smart, Legacy-Building Strategy (4 min read)

2. From the Archive: Transferring Highly Appreciated Assets Like Bitcoin and Art to a Sole-Member LLC. Read it here.

Thursday has arrived—stay informed and elevate your week.

-TCoL

Missed our last feature article? Should LLCs Always Have Annual Member Meetings? Read it here.

☕ Protect Your Business for Less Than Your Starbucks Run.
For just $7.95/month, unlock The Co. Letter Premium and get immediate access to our expanding library of professional business templates [Get Premium Now].

Save time. Save money. Stay protected.

As a new LLC owner, you’re laying the foundation for something lasting. One underused but powerful way to strengthen your business and your family’s future? Hire your teenager (or grandchildren) to work for your LLC.

You’re already covering their expenses—clothes, gas, hobbies. Why not pay them through your business? Done right, it’s tax-smart, skill-building, and future-funding. This isn’t about having a kid run your sales team. It’s about putting their real talents—coding, social media, AI tools—to work in a way that reduces your taxes and builds their confidence.

Here’s how to do it practically, effectively, and with legacy in mind.

Why Put Your Teen or Grandchildren on Payroll?

Done properly, this move blends financial strategy with legacy-building purpose. And their digital skills might be just what your business needs.

1. You’re Already Paying—Now Make It Tax-Smart

If you’re giving your teen money anyway, pay them through your LLC for real work. That shifts dollars from your taxable business income to their paycheck. In 2025, they can earn up to $15,000 without owing federal income tax, thanks to the standard deduction. That’s money you were going to spend regardless—now it’s tax-free and educational.

2. Their Skills Can Help You Compete

Many teens are digital natives fluent in:

• Coding: Building or tweaking your website, automating small tasks.

• AI Tools: Using ChatGPT, Grok, or image generators for content, support, or to automate your company.

• Social Media: Creating or coordinating TikToks, YouTube, Instagram Reels, or LinkedIn posts.

• Cyber Security: Every LLC and owner needs protection: Get them started by re-reading our most recent article on Cyber Security [here].

• Tech Support: Troubleshooting devices or software.

These aren’t just hobbies—they’re marketable skills. Letting your teen handle social media or AI can save thousands versus hiring contractors. Plus, they bring creativity your business may lack.

3. Build Work Ethic and a Legacy Mindset

Your teen learns discipline and responsibility. You model leadership. They see what it takes to build something lasting. Whether they’re coding a landing page or posting on Instagram, they gain confidence through real accountability.

This isn’t just about earning—it’s about preparing them for life and showing them what legacy looks like in action.

4. No Payroll Taxes in Many Cases

If your LLC is taxed as a sole proprietorship or partnership (and you and your spouse are the only members), you can hire your under-18 child or grandchild without paying Social Security or Medicare taxes.

This doesn’t apply to LLCs taxed as S-Corps or C-Corps, but even then, your child may get a full refund of withheld taxes if their total income is under the $15,000 threshold. Consult your accountant. Some states require unemployment tax or reporting, so check those rules too. Still deciding whether to make an S election for your LLC? Read our most recent article [here].

5. It’s a Legitimate Deduction

Wages paid to your teen are tax-deductible if:

• The work is necessary,

• The compensation is fair (market rate),

• Records are well maintained.

Think $15–$25/hour for social media, $20–$40/hour for coding. Document the job with a clear description, keep timesheets, and issue pay stubs. The IRS wants proof—give it to them.

Common roles:

• Social media marketing

• Website or tech maintenance

• Data entry or admin tasks

• Office upkeep or inventory

Done right, it’s a deduction for you and real experience for them.

6. It Strengthens Your Family

Working together fosters connection. Your teen or grandchild sees your work ethic firsthand. They understand the business, and you share time that matters. This isn’t just about money (well, maybe a bit)—it’s about meaningful experience.

Fund Their Future: Roth IRA vs. 529 Plan

Your teen’s paycheck can go to one of two powerful savings vehicles—or both:

Roth IRA

• Max Contribution (2025): $7,000 (or their earned income, whichever is less).

• Tax Treatment: Grows tax-free. Withdraw contributions anytime. Withdraw earnings tax-free after 59½.

• Requirements: They need earned income. You open a custodial Roth IRA.

529 Plan

• Purpose: Tax-free growth for qualified education expenses.

• Contribution Limit (2025): $19,000/year or up to $95,000 via 5-year “superfunding.”

• Rollovers: Up to $35,000 can roll into a Roth IRA after 15 years.

• State Tax Breaks: Some states (e.g., New York) offer deductions—worth checking.

Which One?
Go Roth if your teen or grandchildren may not pursue college. Go 529 if college is likely and your state offers tax perks. Or split contributions: $3,000 to Roth, $3,000 to 529, $6,000 to your teen.

Step-by-Step: How to Hire Your Teen

1. Review Your LLC Setup

Is your LLC taxed as a sole proprietorship or partnership with just you and your spouse? If yes, you likely qualify for payroll tax exemptions. If taxed as an S-Corp or C-Corp, different rules apply. Either way, speak with your CPA before setting up their payroll.

2. Assign a Real Job

Match tasks to your teen’s actual skills. Create a written job description. Set an hourly wage based on market value.

3. Process Payroll

Use a compliant payroll service. Withhold income tax if required (but skip FICA if you qualify). Issue a W-2 if needed.

If their only income is under $15,000 and all earned, no federal return is likely needed—but double-check.

4. Fund a Roth IRA or 529 Plan

Set up accounts with trusted providers (Vanguard, Fidelity, Schwab, etc.). Make contributions directly from their pay.

Let them keep some for fun money—but make saving part of the deal.

5. Keep Solid Records

Save job descriptions, timesheets, pay stubs, and contribution records. Keep everything for at least 7 years—or longer, if your state has a longer audit period.

Avoid Costly Mistakes

• IRS Red Flags: No fluff jobs. No inflated pay. Everything should be age-appropriate and well-documented.

• State Variations: Know your state’s payroll rules and tax incentives.

• Contribution Limits: Stick to the caps—$7,000 for Roths, $19,000 for 529s (unless superfunding). Go over, and you’ll file IRS Form 709.

The Payoff

This isn’t a gimmick—it’s smart planning. Let’s say your teen earns $12,000 managing your Instagram:

• You deduct $12,000 as a business expense.

• They owe zero federal income tax.

• You contribute $3,000 to a Roth IRA, $3,000 to a 529, and give them $6,000 to spend.

• With careful investing that Roth IRA could grow tax free into something substantial.

• The 529 cuts future college bills.

All from income you were going to spend anyway (out of your personal wallet).

Your LLC isn’t just a business. It’s a tool to teach, to build, to pass on something greater.

Hire your teen or your grandchildren. Teach them to earn, to save, and to see work as a path to legacy.

Start with one paycheck—and build from there.

Have an interesting business question and need a free bit of advice? Send your question to [email protected]. No confidential info, please!