How Dentists and Business Owners Can Save Taxes by Hiring Their Children

Hiring your children to work in your dental practice or small business can be a smart and fully legal tax-saving strategy—when done right. Not only does it teach valuable life and financial skills, but it can also shift income into lower tax brackets, avoid payroll taxes in some cases, and keep more wealth within your family.

At DrillDown Solution, we help dentists and business owners implement this strategy the right way—compliantly and efficiently.

Why Pay Your Children Through the Business?

Paying your minor children can produce multiple tax advantages:

✅ Federal Income Tax Savings

Children typically pay little to no federal income tax on wages up to the standard deduction, which is $15,000 in 2025. That means you can deduct their wages as a business expense and they may pay zero federal tax on that income.

✅ FICA Tax Savings (Social Security & Medicare)

If your business is a sole proprietorship or an LLC taxed as a sole proprietorship or partnership where both parents are partners, and your child is under age 18, you do not have to pay FICA taxes (Social Security and Medicare) on their wages. This is a major payroll tax saving.

Example:
Let’s say a dentist who operates as a single-member LLC hires her 15-year-old to do office filing, social media support, or maintenance work and pays $12,000 in wages:

• $12,000 becomes a tax-deductible expense
• Child pays no federal tax (below the standard deduction)
• No FICA tax owed if structured properly
• Potentially saves $4,000+ in combined income and payroll taxes

What Counts as a “Self-Employed Parent” for FICA Exemption?

To qualify for the FICA exemption, the business must be:

• A sole proprietorship, or
• A partnership where both partners are the child’s parents

S Corporations and C Corporations do not qualify for the FICA exemption. In those cases, wages paid to children are subject to payroll tax—but you can still benefit from income tax savings.***

***DrillDown has strategies to overcome the FICA hurdle for S and C corporations.

What Kind of Work Can Children Perform?

Children must actually perform work for the business, and that work must be:

• Age-appropriate
• Reasonable and necessary for the business
• Paid at a market rate (what you’d pay a third party)

Examples for dental practices or professional firms:

• Filing, scanning, or shredding documents
• Cleaning the office
• Maintaining social media pages or websites
• Posing for marketing materials (with a likeness/image agreement)
• Assembling welcome kits or office mailers
• Groundskeeping or general maintenance

Image and Likeness Contracts

Even if your child isn’t performing regular office work, you may pay them for use of their image or likeness in marketing and advertising materials.

To do this correctly:

• Execute a simple image/likeness agreement
• Pay a reasonable rate for modeling or advertising services
• Keep records of usage (e.g., website screenshots, social media posts)

Documentation and Payroll Compliance Steps

To remain compliant with IRS and Department of Labor rules, treat your child like any other employee:

1. W-4 Form — Have them fill out a federal withholding form
2. I-9 Form — Verify identity and eligibility to work
3. Time records — Keep logs of hours worked and tasks performed
4. Wage payment — Pay via check or direct deposit into a custodial or joint account
5. Payroll filings — Submit W-2 at year-end (even if no tax is withheld)
6. Market-based compensation — Don’t overpay to inflate deductions

Watch Out for State-Specific Rules

Some states have additional requirements for minor employees. You should:

• Check whether workers’ compensation insurance is required
• Verify rules on unemployment insurance
• Review minor labor laws (e.g., work permits or age restrictions)

States vary widely, so consult your CPA or legal advisor before hiring a minor.

Pro Tip: Fund a Roth IRA with Their Wages

Once your child has earned income, they become eligible to contribute to a Roth IRA. This is a great long-term wealth-building tool, allowing tax-free growth for decades.

DrillDown Solution Can Help You Do It Right

At DrillDown Solution, we specialize in advanced tax strategies for dentists and business owners—including the smart use of family employment. We help you:

• Set up payroll properly
• Execute image contracts or employment agreements
• Track and document hours
• Ensure compliance with federal and state rules
• Maximize tax savings while staying audit-ready

Ready to Pay Your Kids the Smart Way?

Hiring your children is one of the most effective—and underutilized—tax strategies for business owners. Done correctly, it builds your child’s financial future and reduces your family’s tax burden.

Want a turnkey system for paying your children through your business?
Contact DrillDown Solution today to schedule a tax strategy consultation.