Taken from Gary Klott's TaxPlanet.com:

Benefits for Business Owners to Put Their Kids on Summer Payroll

Besides giving your youngster something constructive to do, there are several tax benefits to bringing a child into the family business.

Parents who run their own businesses should consider putting on their payroll any sons or daughters who don't have another job lined up for the summer.

Besides giving your children something constructive to do during the summer, there are several tax benefits to bringing a child into the family business.

If you're a sole proprietor, the wages you pay your child can be deducted as a business expense on your income tax return. Secondly, wages paid by a parent to a son or daughter under age 18 are exempt from Social Security tax.

Furthermore, your child won't have to pay much income tax on the wages earned this summer. The first $4,400 in wages will be sheltered from tax by the standard deduction. Additional sums are taxed at the child's tax rate, which in most cases will be 15 percent.

One caution: Don't try inflating your child's salary in hopes of squeezing extra tax benefits from this cozy work arrangement. The salary you pay your child must be the going rate for the services performed.

Attempts to funnel extra business income to a child for the purpose of minimizing taxes can easily be spotted in an audit.

So if the IRS agent finds you paid your teenager $15,000 to sweep the office floors during the summer, not only are you likely to be assessed extra tax, but other transactions on your return are also likely to be viewed with extra suspicion.

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