Many business owners overlook a powerful strategy that allows them to pay family members, reduce taxes, and avoid payroll taxes altogether.
You likely know the traditional approach: hire your child and put them on payroll. That strategy works well for younger children in a sole proprietorship. But once your child turns 18—or if you operate as a corporation—payroll taxes usually apply.
In the right situation, a lesser-known alternative offers a better outcome.
You can hire a family member for a “one-time project” instead of ongoing work. This structure allows you to deduct the payment at your higher tax rate while your family member reports the income at a much lower rate—often with little or no tax liability.
For example, you might pay your college-age child to design a website, create marketing materials, or complete a facility upgrade. If you structure the work as a true one-time project—not a continuous or recurring one—the income avoids employee status and thus payroll taxes for both you and the child. It also avoids 1099 independent contractor status and thus self-employment taxes for the child.
This approach can generate meaningful savings. In one scenario, a $23,225 payment produced over $7,800 in net family tax savings.
To make this strategy work, you must follow several key rules:
- Define a clear, one-time project with a specific scope.
- Pay a reasonable, fixed amount upon completion of the project.
- Avoid hourly wages or ongoing tasks.
- Maintain simple documentation and proof of completion.
- Ensure the arrangement supports proper worker classification.
This strategy depends heavily on proper structure and execution. If you treat the work as ongoing employment, you risk having your child or other family member classified as an employee or a 1099 independent contractor.
When done correctly, this approach efficiently shifts income, minimizes taxes, and keeps compliance simple.
If you want to discuss the one-time project strategy, please contact us at hello@agfintax.com.
