Many self-employed people want to hire family members to work for them. But as with many things in life, there’s a right way and a wrong way to do this. Doing it correctly not only promotes family togetherness, it can also create tax savings for you.When you hire a family member your business can take a deduction for reasonable compensation paid to this employee, which consequently reduces the amount of taxable business income that flows through to you. I emphasize reasonable compensation because the IRS can question compensation paid to a family member if the amount doesn’t seem reasonable given the services actually performed. Also, you must be sure your business complies with child labor laws when hiring a family member who’s a minor.
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