If you pay your child to work for your business, make it legitimate by following these steps:

1. Agree on a rate of pay. This should be a fair rate, what you would pay someone else in an “arm’s-length transaction”.
2. Write up a written contract detailing the job responsibilities and both sign.
3. Write him a paycheck monthly for simplicity.
4. She should file an income tax return to document her “earned income”.

A business expenses must be “ordinary and necessary” to be a valid tax deduction. Use that definition as your yardstick when assigning responsibilities and setting pay rates.

Why should I hire my child?

How to start a Roth IRA for your child

How to deduct the cost of raising your children