How To Legally Put Your Kids on Payroll (Bookkeeping Strategy for Service-Based Businesses)

Paul Belshaw
Aug 17
3 min read

If you own a service-based business, you already know that managing bookkeeping, taxes, and payroll can feel overwhelming. But here’s one strategy many small business owners overlook: legally putting your kids on payroll. Done correctly, this approach can provide tax savings, cleaner bookkeeping, and long-term financial advantages for your family—all while keeping your business compliant with IRS rules.

Here’s how this payroll strategy works and why it could be a game-changer for your business.

Tax Benefits of Employing Your Children

Hiring your kids is more than just teaching them responsibility—it’s a legitimate way to lower your tax bill while improving bookkeeping accuracy.

Tax-Deductible Wages: Salaries paid to your children reduce your taxable business income.
Standard Deduction Advantage: In 2025, children can earn up to $15,000 tax-free.
Payroll Tax Exemptions: Sole proprietorships and family LLCs don’t owe Social Security or Medicare taxes for children under 18.
Roth IRA Growth: With earned income, your child can contribute to a Roth IRA, creating tax-free retirement growth.

The catch? You must maintain detailed bookkeeping records and follow IRS payroll guidelines. That’s where a trusted accountant makes all the difference.

Age Requirements & Labor Laws for Service Businesses

If you run an HVAC company, lawn care service, or auto repair shop, you can put your kids to work legally—but within limits.

Children of any age may work in a parent-owned business (non-farm).
Kids under 16 can’t work more than 40 hours/week while school is in session.
Pay must be reasonable for the tasks assigned.
Timesheets, job descriptions, and payroll records are essential for compliance.

Violating labor laws can create IRS or state-level problems—something strong bookkeeping and advisory services can help you avoid.

Bookkeeping Documentation You Must Have

The IRS will only honor these deductions if you can prove legitimacy. Belshaw Accounting recommends:

Writing job descriptions with clear responsibilities.
Using timesheets to track hours.
Issuing W-2s and saving payroll records.
Storing digital copies of contracts, pay stubs, and receipts.

Accurate bookkeeping protects you during an audit and keeps your payroll strategy airtight.

Reasonable Wages for Real Work

To stay compliant, pay your children fair wages for the work they do—whether it’s filing, organizing receipts, or entering invoices into QuickBooks.

Service-based businesses can use local wage data to determine fair compensation. Documenting this protects you if the IRS ever asks questions.

Examples of Age-Appropriate Work

Your child’s work should directly support your business. Examples for service-based companies include:

Filing and organizing invoices for your HVAC or plumbing company
Updating QuickBooks or entering expenses for a lawn care business
Scheduling client appointments for an auto repair shop
Assisting with social media or marketing for your contracting business

Every task must support the business, not household chores.

Business Structure & Payroll Rules

The way your business is structured impacts payroll taxes:

Sole Proprietorships & Family LLCs: Children under 18 are exempt from payroll taxes.
S-Corps & C-Corps: Standard payroll taxes apply.
Over Age 18: Children must be treated as regular employees (W-2) or independent contractors (1099).

👉 Choosing the right structure is a core part of advisory services that Belshaw Accounting offers to service-based businesses in Pasco County.

Building Wealth for Your Children

This strategy isn’t just about saving taxes—it also helps build long-term financial security. Your child’s wages can fund:

Roth IRAs for retirement savings
529 Plans for college education
Savings accounts to teach budgeting and money management

With Belshaw Accounting’s bookkeeping and tax expertise, we’ll help set up these accounts and keep your payroll records aligned with IRS rules.

Recordkeeping Best Practices

Good recordkeeping = IRS compliance. Service-based businesses in Holiday and Tampa should:

Keep job descriptions and contracts for all child employees
Track hours with timesheets or payroll software
Back up all payroll data digitally
Review payroll quarterly for accuracy

Belshaw Accounting can manage your bookkeeping and payroll, ensuring everything is documented correctly so you stay compliant.

Key Takeaways for Service-Based Business Owners

Legally employing your children creates tax savings and wealth-building opportunities.
Accurate bookkeeping and payroll documentation are essential.
Pay must be reasonable and tied to real, age-appropriate tasks.
Business structure matters for payroll tax treatment.
Partnering with a local bookkeeping and tax advisor ensures compliance and maximizes benefits.

Conclusion

For service-based businesses, putting your kids on payroll is more than a tax trick—it’s a strategic bookkeeping move that saves money, teaches responsibility, and builds wealth for the next generation.

The key is planning ahead and making sure every detail is set up correctly. With Belshaw Accounting as your partner, this strategy is 100% legal, fully IRS-compliant, and one of the most effective tools in the 2025 tax playbook for service-based business owners.

Let’s make sure your bookkeeping, payroll, and tax planning are working as hard as you do. Call Belshaw Accounting today to get started.