I’ll give you $2,600 if you will give your child $5,700. Would you be interested in this proposition?

That’s what federal and state governments paid Sally Wilson when she paid her 13-year-old child $5,700 to work in her proprietorship.

Had Ms. Wilson operated her business as a corporation, state and local governments would have paid the corporation $644.

The $2,600 that Ms. Wilson received and the $644 that the corporation would have received came from hiring-your-child tax breaks. We’ll explain those breaks in this article.

First, let’s examine the situation of Ms. Wilson’s child. The child pays zero federal taxes on the $5,700 of earned income. Wow! That’s nice. Ms. Wilson gets a tax deduction, and the child pays zero taxes.

What makes the child’s taxes zero? The standard deduction—this is the deduction in lieu of itemizing deductions for mortgage interest, property taxes, charitable contributions, etc. For both 2009 and 2010, the standard deduction is $5,700.

Why Hire Your Child?

Hiring your child gives you the opportunity to work with someone you know, love, and trust.

If you give money to your child and/or plan to help your child pay for college, the hire-your-child strategy is a big ... Log in to view full article.