Article / Tax strategy and family payroll

Your teenager can earn $15K from your practice. Do it properly.

Paying your child through the practice can be a legitimate tax strategy. It stops being one the moment the work, the hours or the pay are made up.

Austin MoffatFounder, DSO CFO

Your kid has to actually work

There are tax strategies that sound like something someone made up on the internet. Pay your kid $15,000 through your dental practice, potentially with little or no federal income tax. Yes, this can be legitimate. I have also seen people take a good tax strategy and ruin it by doing the one thing they should not do: making the numbers up.

If your 14-year-old actually works for the practice, there are circumstances where paying them legitimate wages can make financial sense. The child reports their own earned income, and a dependent child’s earned income may be sheltered by the standard deduction depending on the amount and their circumstances. The important word is actually.

This is not a strategy where you hand your teenager a $15,000 check because you want another deduction. The work should be real, age-appropriate, necessary or useful to the business, and documented. Social media content, organizing files, basic administrative work, scanning documents, appropriate marketing tasks. Then pay them a reasonable wage for it.

I would much rather see a practice pay a teenager $15,000 for documented work at a reasonable rate than see someone try to justify $15,000 for “helping around the office” when there is no evidence the work happened.

The business structure matters

The tax treatment is not identical for every dental practice. If a child under 18 works for a parent’s sole proprietorship, or a partnership where every partner is the child’s parent, the wages are generally not subject to Social Security and Medicare taxes, and wages to a child under 21 can also be exempt from federal unemployment tax in those circumstances.

If the practice is a corporation, those family-employee exceptions generally do not apply. The child’s wages are subject to the usual employment taxes like any other employee’s.

That is why I would not copy something you saw another dentist doing without first looking at how their practice is structured.

Documentation is the whole strategy

If you are going to do this, do it like you would with any other employee.

A job description.
Tracked hours.
A reasonable wage for the work.
Payroll run properly.
Records of the work performed.
The required W-2.

The IRS treats compensation for services as wages, and a child’s earnings from services belong to the child rather than automatically becoming the parent’s income. The strategy is not complicated. The execution is where people get careless.

Real work. Reasonable pay. Proper payroll.The version that holds up has all three. The version that gets flagged has none.

The bigger opportunity

I do not think paying your kids through the practice is going to transform a dental practice’s finances. That is not why I like strategies like this. I like them because they are small, legitimate opportunities that can be part of a much bigger tax plan: retirement planning, equipment timing, real estate, the Augusta Rule, family employment. None of them has to change your life by itself. Properly structured and actually fitting your situation, small wins compound.

That is how I think about tax planning. Not finding the biggest loophole. Finding the legitimate opportunities you are already eligible for and implementing them correctly.

If you are considering employing your kids through the practice, do not start with the tax deduction. Start with whether the work is real, the pay is reasonable, and the structure is correct.

Frequently asked questions

Can a dentist pay their child through the practice?

Yes, when the child does real, age-appropriate work and is paid a reasonable wage through proper payroll with a W-2. Up to the standard deduction the child generally owes no federal income tax on those wages, and the practice deducts them. Made-up hours or inflated pay turn a legitimate strategy into a problem.

Do I owe payroll taxes on my child’s wages?

It depends on the practice’s structure. For a sole proprietorship, or a partnership where every partner is the child’s parent, wages to a child under 18 are generally exempt from Social Security and Medicare taxes. If the practice is a corporation, those exceptions do not apply and normal employment taxes are due. Confirm with your CPA.

What records do I need?

A job description, a timesheet, evidence of the work done, payroll records showing a reasonable rate, and a W-2 at year end. Treat your child like any other employee on paper.