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You can legally hire members of your family to work for you and make them a tax deduction. He or she must provide a value to your business for you to justify their hiring. Hiring your husband or wife could also make some everyday expenses tax-deductible. Life insurance payments, health insurance payments, tuition for education related to work, and work travel and entertainment expenses are tax deductible.

You can hire your kids or grand-kids to work for your business part time doing jobs like cleaning the office, maintaining the work vehicle, addressing envelopes, answering the phone, tracking inventory, making deliveries, data entry, or just running errands.

The money you pay them becomes a tax deduction, even if it becomes their allowance or is deposited into a savings account. In this manner, money you might ordinarily just be handing to your children or squirreling away for them becomes a tax deduction for you.

Of course any salary you pay to any member of your family must be recorded on their own income tax return. However, you can pay out up to $7,756 annually and not take any tax deductions from their pay.

Of course, they have to work, like any other employee. You can pay a deductible salary to a member of your family, as long as it is not substantially more than you would have to pay a non-family member to do that same job. The pay can’t be considered disproportionate to the work.

If the person performing the job were not a member of your family, you would have to pay them at least minimum wage. So, it would make sense to pay minimum wage to them. Salaries are tax-deductible to you, as an employer, and taxable to your family members as income.

The pay to your family members must be periodic, at least once a month. You lose any tax benefit if you pay wages to a family member whose tax bracket is higher than yours. Pay by check, not in cash. Do not treat the family members pay any differently than any other current employee.

Of course, this works best if you are running your business from your home, as home business tax deductions become applicable as well. In this scenario, along with your family members’ earnings becoming tax deductible, many costs of the daily operation of your house like electricity and heating could qualify. Check on all the deductions available to you if you combine hiring family members with working from home. There is a lot of tax benefit to running your business this way.

Can you employ your family members in your business? Well you can do it but you need to convince IRS that this is not just a family adjustment. If you employ, what expenses can you claim as a deduction? What precautions should you take? Chintamani Abhyankar explains.

Chintamani Abhyankar, is a well known expert in the field of finance and taxation for last 25 years. He has written many books explaining inside secrets of the magic world of personal finance. His famous Tax eBook “Stop donating your money to IRS” which is now running in its second edition, provides intricate knowledge and valuable tips on personal finance and income tax.

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