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Business owner says he avoided taxes by paying children as employees
The strategy hinges on payroll rules for hiring minors, but the article warns deductions and tax treatment may change depending on the business structure, including sole proprietorships versus corporations.
A U.S. business owner featured on Caleb Hammer's Financial Audit says he has not filed taxes for four years and believes he can avoid paying the Internal Revenue Service by putting his children on the payroll. The guest describes a plan in which a 9-year-old cuts grass, a 13-year-old cuts grass, and younger children model for advertising, with payments framed as tax-free for the children and tax-deductible for the business.
Yahoo Finance notes that parents can hire their children and potentially gain tax advantages if the work is appropriate, age-appropriate, and paid at a market rate. The article emphasizes that failing to file taxes for years can still create problems even if parts of the idea resemble a legitimate approach.
The piece cites U.S. Department of Labor rules that allow parents to employ their own children under 16, any number of hours, in a business they wholly own, with limits excluding manufacturing, mining, or hazardous work. It also points to IRS guidance that payments for the services of a child under 18 are not subject to Social Security and Medicare taxes when the business is structured as a sole proprietorship, or as a partnership where each partner is also the child's parent.
Finally, the article cautions that the claimed payroll savings may disappear if the business is a corporation, or a partnership that includes anyone who is not the child's parent. It also references a Supreme Court ruling from 1985 as part of why blame cannot necessarily be shifted to a certified public accountant.