Here’s a question I received from one of my clients:
Rob, what's up man? Hope you and the family are well. Speaking of family, I saw that I can pay my daughter on Tik Tok. I don't think they were a CPA but if I hire my kid, can we write that off? And if so, how?
Short answer: Yes and via W-2.
Longer answer: Yes. And W-2 payment is essential. If you pay her on a 1099, she will pay self-employment taxes. Would be akin to shooting yourself in the foot. Also, try and keep it under $13K.
When you pay her on a W-2, neither you nor your daughter pays any Social Security or Medicare taxes, and in most states, you also don’t pay any unemployment taxes.
Key point 1. Your single-member LLC is a “disregarded entity” for federal tax purposes. It’s taxed as a sole proprietorship (unless you elect corporate treatment). In this instance, you are the child’s parent, enabling “no Social Security or Medicare taxes” for both your child and your proprietorship.
Key point 2. Your daughter has a $12,950 standard deduction. This means she also pays zero tax on earned income up to that amount.