Ep 268: The Best Hire You'll Ever Make Lives Under Your Roof.

What if I told you that the irs, yes, the irs, actually built a legal way for you to pay your kids, reduce your taxable income, and start setting them up for financial independence all at the same time?

And what if I also told you that most business owners have absolutely no idea that this exists and the ones who do know about it usually aren't doing it right?

That's what we're getting into today.

And stick around, because I've got two more strategies that I personally use with my kids that most financial advise aren't talking about.

So I hope that you enjoy this episode.

And here we go.

Welcome to the weekly Wealth Podcast.

I am certified financial planner David Chudick.

This podcast and my wealth management practice are both designed to help the mass affluent to live better lives by how they handle their money.

We talk about financial strategies, prosperous mindsets, and simply how to build true wealth.

So come on and let's enjoy this journey together.

Hey, everybody, I'm David Chudick.

I'm a certified financial planner.

I am a business owner myself, and I am the host of the weekly wealth podcast.

So before we dive in, if you're finding any value at all from this podcast, the single best thing you can do is subscribe wherever you're listening.

It takes about four seconds and it makes sure you don't miss an episode.

And I really do appreciate it.

Also, don't forget to follow us on social media.

We're doing the best that we can to put the best possible content out there.

I believe that how we handle our money should positively impact our lives and the lives of those around us.

And I hope that this podcast and our social media content, content is a small piece of the puzzle in your life.

Okay, so here's the setup.

If you own a business, and I'm talking about a legitimate business, not like a paper entity, not a hobby, not something that you saw on TikTok on how to dodge taxes.

But if you have a legitimate business, you can hire your minor children to do real work.

Now, that's part of the catch.

It has to be real work for that business.

And the IRS is totally fine with this, so why does this matter, right?

There's a few reasons.

First of all, their wages are deductible as a business expense to you.

So instead of paying taxes on that money, then handing it to your kid, you shift it out of your tax bracket entirely.

So let's say, I don't know, your profit this month is going to be $10,000.

Just making up a number.

And let's say you paid your teenager $1,000 for doing legitimate work.

All right, so what did that do to your profit?

That thousand dollars paid to your teenager is a legitimate business expense.

So your profit dropped from $10,000 to $9,000.

Now you're probably in a, I don't know, 32, 37% federal tax bracket and your teenager may be in a 0% tax bracket.

So it's a really great way to shift money from your high tax bracket to your child's lower tax bracket.

So that's something that many business owners need to be thinking about is putting your kids to work.

And there are some other benefits of putting your kids to work that are not just financial.

And we'll get to those later on in the show.

Now, second, and this is where it gets really interesting.

If you're a sole proprietor or a single member LLC taxed as a sole proprietor, wages paid to Your children under 18 are also exempt from Social Security and Medicare taxes.

So that's another 15.3% savings.

Yep, you heard that right.

15%.

15.3% Savings on payroll taxes.

And third, your kids pay taxes on that money at their own rate, which is usually 0, 0.

That's what your kids will normally pay in taxes because they don't have enough income to owe federal income tax.

So in 2026, the standard deduction for somebody who is filing as a single filer is $16,000.

So if they make less than $16,000, all of that to them.

So what kind of work are we talking about?

And here's the big thing that you have to get right.

This has to be legitimate.

Work hours need to be tracked.

You can't be naive about this.

And you have to get it right.

So real work is easier to document than most people think.

Do you think your teenager is better at generating social media content for your business than you are?

I think they probably are.

That's legitimate work.

What about filing?

What about cleaning the office?

What about running errands?

What about landscaping?

Does your office maybe have some grass that needs to be cut?

If you have a photography or video heavy business, your kids editing images or managing your YouTube channel is completely legit.

Now here's the key, and remember this.

The work has to match the age of the child and it has to be documented.

So maybe make your child keep a log of what they did each day and how long they worked.

And you have to pay reasonable wages for that work.

So if you're having your 16 year old manage your YouTube channel and paying them $1,000 an hour, that's probably not reasonable.

But are you paying them $10, $15, $20 an hour?

That's probably reasonable.

Now of course, like always, you want to contact your CPA for specific guidance in your specific situation.

But generally speaking, if you're paying a reasonable wage for work that is reasonable for a child your child's age to be done as payroll, which is an expense and that lowers your profit.

So you can't pay your 7 year old $40,000 a year to quote, organize your desk, but you can pay your 14 year old 10 to $12 an hour to handle your social media scheduling or organizing client files.

Just make sure you're keeping timesheets.

Pay them through payroll like any other employee.

That's it.

That's all they are in this case, they are employees.

And that payroll expense is an expense.

Now, in addition to these benefits that we spoke about, the fact that the business profit is going down because you have that expense, there's another benefit to you and to your kids and your family.

And here's how I want to slow down for a second because this is the part that most people blow past right when they talk about this strategy.

Yes, tax savings are real.

Yes, the numbers work.

But if you just funnel your kids wages into a Roth IRA and never let them touch it or thinking about it, you're missing the entire point.

So when your kids get paid, let them manage some of that money.

Actually give it to them.

Maybe not actual paper money because does that even exist anymore, but let them learn how to manage money.

So maybe you give them $200 and you help them to figure out which clothes to buy.

All of a sudden maybe the name brand clothing becomes less important.

When they're using their all money, let them feel the pride of earning their money because that's different than receiving an allowance.

This was not an allowance that you're paid to live.

This is a paycheck for doing work.

Now as you know, my philosophy around money has always been this.

How we handle our money should positively impact our lives and the lives of those around us.

And that doesn't start at 25, it starts now when they're young, when the stakes are low and the lessons are cheap.

So maybe you take that paycheck and you divide it up and some portion of that gets given away.

Maybe you allow them to choose.

Does it go to the church, does it go to an organization?

Does it go just to maybe a class who appears to maybe come from a lower income home?

So teach them how to do good with their money.

And then let's also take a portion of that money and we can argue and debate which percentages, but let's save some of that money and we're going to talk about some good places to think about putting that money.

But let's save some of it and then let's enjoy some of it, right?

Because part of the puzzles of financial planning as we get older is like, how much should we give away, how much should we save or invest?

And how much should we enjoy?

So we want to teach our kids that, yes, it's okay, you worked, you can enjoy some of your money.

Don't enjoy all of it because you end up being broke.

Don't invest all of it because maybe then you're not enjoying the fruits of your labor.

And of course they, and we all have to figure out the right amount of money to give away.

So the point of this whole strategy is not just to save money on taxes, it's to build wealth and, and to build the next generation.

Both can happen at the same time.

And I don't know, I just think that a lot of parents don't do a great job teaching their kids about money.

And I also believe that schools probably aren't doing a whole lot to teach students about money.

So guess what?

As parents, this is our job, right?

We need to take the reins on this.

So let me know what you think about this strategy paying your kids legitimate wages through your business.

Email me, let me know davidarallelfinancial.com I'd be interested in your feedback.

Alright, so remember in the last segment we said that it would be great to teach your children how much of their money that they earn they should give away, how much of it they should save and invest, and how much they should just plain enjoy.

So for the money that they are going to save, let's talk about a Roth ira.

Now, a Roth is just a container.

What's inside of the Roth is what's going to go up or down.

So we're not going to talk about investment strategies here, but we are going to talk about the Roth as a container that would hold investments that could be ETFs, they could be stocks, that could be bonds, they could even be CDs or anything like cash.

So your kid has earned income now, they have an actual paycheck.

And the rule with Roth IRAs is you can tribute up to your earned income or the annual contribution amount, whichever is less.

So let's say your teenager earned $10,000 this year and they picked an amount of money that they wanted to give away, and they picked an amount of money that they wanted to spend, and then they decided they're going to save $5,000.

Now, they might decide to put that into a custodial Roth ira.

Now, let's think about this.

Here's a number that I want to sit with you for a little while.

If a 15 year old contributes $5,000 a year into a Roth IRA from age 15 to 30, that's 16 years.

And they've put in $80,000 out of pocket, all right?

Now, let's say it earns a very average 8% return.

They'll have roughly $164,000 by age 30.

So they put in 80.

They have a hypothetical $164,000.

Now, that's solid, but here's the part that should make your jaw drop.

If they never put another dollar in, and if they just let that $164,000 sit there and compound in age until age 65, it grows to over $2.4 million tax free.

That's not a typo.

$2.4 Million.

What do you think you could do with $2.4 million right now, all from $5,000 a year starting at age 15?

And remember, it's a Roth.

They pay no taxes on any of it.

When they pull it out for retirement, that is generational type effects.

And it starts with the same strategy we're already doing with the tax deduction for the payroll.

All right, here's strategy number two that you can use to help set your child up financially.

Okay, so, but you could help them to build their credit before they need it.

Credit is very important.

Credit affects the prices that you pay for cell phones, for loans, for car loans, for mortgages.

Your credit affects a lot.

So think about this.

You can add your child as an authorized user to one of your credit cards.

Now, I know for some of you the sentence that just made you cringe, but hear me out, because the reason to do this isn't to give your kid a credit card to recklessly use to blow money on, is to start building credit history for them while they're still under your roof and you still have some influence.

Now, let me preface this.

If you are the adult, if you're the parents, and if you're listening to the weekly wealth podcast right now, and if you've struggled with credit card debt, and if you've struggled with being able to manage credit, this may not work for you.

But if you're someone who maybe like in our family, we basically Put everything on our American Express card, we buy groceries and such, then we pay it off every month.

Then this could be a great strategy.

But I can't stress it enough.

If you are someone who struggles with managing credit, this might not work for you.

All right, so with that out of the way, here's how this would work.

When you add your child as an authorized user, that account, your account with your history starts showing up on their credit report.

If it's a card you've had for years with a clean payment history and a low utilization rate, that's the credit history they're inheriting.

And by the time they're 18 and applying for their first apartment or first car loan, they're not starting from zero.

They have a foundation.

Now, I said I'd give you the honest version of the strategy, so let me do that.

The risk is real.

And here's where most financial advisors don't tell you.

If you add your child as an authorized user and they have access to the physical card, they can max it out.

And other than, like, I don't know, physical violence, you have no.

You really don't have any recourse because they are an authorized user.

Okay, so they could max out their card, and there's very little that you could do about it legally.

All right, so the card is their name, too.

And the family doesn't.

The bank doesn't care about family drama.

So here's how I'd think about it.

Add them to the card for the credit building benefit.

You don't even have to give them the physical card.

For that matter, maybe they don't even have to know that it exists.

You can keep the card in your wallet.

The credit history still builds.

That's the whole point.

And when they're old enough and you trust them, have the conversation about credit, what it is, why it matters, how to not wreck it before the card becomes a spending tool.

The conversation is worth as much as the credit score itself.

All right.

Hey, I'd be really interested to know.

And what do you think?

Would you name one of your children as an authorized user on one of your credit cards?

Go to www.weeklywealthpodcast.com, click on the microphone icon, and leave me a voicemail.

Did you know almost half of all business owners will hit the same stumbling block?

They become the primary revenue driver for their company, the Rainmaker.

Avoid the downhill trap of becoming the Rainmaker and make the transition to architect of your business.

Download the free ebook the Rainmaker's dilemma by visiting www.weeklywealthpodcast.com on rainmaker.

Again, that is www.weeklywealthpodcast.com rainmaker.

All right, and here is a last strategy that you might be able to use.

And this could help you to set your children up to be a little bit ahead of the game when they become young adults.

And this is a college house play and this is something that we did personally and this has worked out incredibly.

All right, so strategy number three, one of my favorite, and I can tell you how it works because we did it when our first kid went to college.

He had to go to a dorm.

And the dorms were like these little prison cells and they were small and they were really expensive.

The second year they didn't have to live in the dorms.

And you start looking at apartments and they're a lot of money and some of them quite honestly just way too nice.

So here's what happened next.

We looked around for some houses and we were able to find a house.

And we used one room for our child and then we rented the other two rooms out.

And that paid all of the expenses of the mortgage, of property taxes, of insurance, and even of a couple expenses.

So what this amounted to was our kids housing was essentially free.

It wasn't partially subsidized, it wasn't partially free.

It was free.

Now here's the part that makes it a wealth building strategy, not just a clever budgeting hack.

This house is also appreciated in value.

So we weren't just solving a housing cost problem.

We were building equity at the same time with two other people paying for our mortgage.

Now let's think about what the alternative might have looked like.

Four years of paying for a dorm or an apartment and that money would be gone.

There'd be no equity, no appreciation, no asset.

At the end, you just rented some square footage for four years and have nothing to show for it.

So is this a strategy for everybody?

No.

You need capital for a down payment.

You need to be in a market where the numbers work.

We got really lucky.

And if you don't believe in miracles, maybe this was a miracle.

This was back during the pre 3% interest rate times that made the deal look a whole lot better.

You need a kid who can be a reasonable landlord to their roommates.

And that's a conversation.

And you'll need to be the manager of a small rental property or hire someone who will.

Now here's another thing.

And make sure you talk to your lawyer, your financial advisor, and or your cpa, depending on who owns the Property.

If your child is a part owner, which ours was, then that becomes a primary residence and the property taxes are much, much lower.

So again, talk to your real estate agent, talk to your cpa, talk to your advisors to see if that works for you.

But that is part of what we did.

But if you're a business owner, if you've got assets, if your kid is heading to a college town where real estate is reasonably priced, this is worth running the numbers on, seriously, because the math can be really compelling.

And instead of college costing you money every year, it might actually grow your net worth.

That's the kind of thinking that separates people who build wealth from those who make good money and spend it.

And I can tell you for sure because I talk to a lot of parents and I talk to a lot of college graduates.

There are a lot of kids that are borrowing a lot of money to pay for really nice apartments that are just way too nice for the college life.

So our little college house, it's certainly not a mansion, it's certainly not living in luxury, but it's worked out financially.

Okay, so let's recap what we cover today.

If we.

If you own a business, consider hiring your kids.

This has to be a real hire.

You have to do the E verify.

You have to set them up on payroll, pay them legitimate wage for work, deduct it, and do all of those things.

You have to keep a log so you can defend any audits.

So it's not just free, you have to do some work.

But get with your payroll provider, get with your accountant and find out how they want you to handle this.

But it can be a great idea.

Take that money that your child is earning, help them to determine how much of it should be saved, how much of it should be invested, and how much of it should be just spent on lifestyle.

Right?

We deserve to have good lifestyles when we're working.

All right?

Now, if there is money to be saved, consider putting it into a Roth ira.

And that can create tax free money in the future.

Now you can also add your kid as an authorized user on your credit card.

And again, you don't even have to give them access to the card.

You just let the history start building years before they need it again.

Couple negatives here.

If you ever run into hard times and you're not able to pay that credit card bill and it goes delinquent, then that will be on their record.

So that's a negative.

If you've struggled with being able to responsibly manage credit cards then that can be a negative of that strategy.

And of course, if your child does have access to the card, there's nothing stopping them from maxing out the card or using it irresponsibly.

Okay, but those are some of the pros and cons of adding a kid as an active user to your credit card.

And then if college is on the horizon, seriously, look at the rental property angle.

The numbers might surprise you.

In our case, we had to come up with a down payment and it happened in a great time when interest rates were low and it really worked out for us.

Now, if you're a business owner and if you've been listening to this and thinking, I need to actually get my financial house in order, I know I'm making enough money.

Maybe it always just seems like there's not enough.

I know I'm maybe behind in how much money I'm saving.

I've been thinking about selling my business at a point, but I don't even know what it would sell for.

I want to point you towards two things.

You can either go to www.weeklywealthpodcast.com vision schedule a time and let's just talk about some of the issues that are concerning you.

We'll do the best that we can to point you in the right direction and tell you if there are any next steps.

And if you want a free assessment that can tell you how sellable your business is, you can go to www.weeklywealthpodcast.com sellabilityscore.

It gives you a real picture of how valuable and sellable your business is right now.

Most business owners have never had this conversation and the results are eye opening only.

Takes about 10 or 13 minutes and it's completely free.

All right everybody, until next episode, I wish everybody a blessed week.

Have a great one.

The information presented on this podcast is for general educational purposes only and does not constitute financial investment, legal or tax advice.

Parallel Financial is registered with the U.S. securities and Exchange Commission as a registered Investment Advisor.

Registration does not imply a certain level of skill or training, nor does it constitute an endorsement by the sec.

All investing involves risk, including the potential loss of principal.

Please consult a qualified financial professional before making any financial decisions.

And here is this week's bonus content.

So talk to your kids about your expenses.

I don't think most kids know what their parents mortgage payment is.

I think a lot of kids don't even know how much money their parents make.

And I think a lot of times kids the only context they have for money is athletes salary like where some guy just signed a 50 million dollar contract.

And that's not reality for most people.

So talk to your kids about what it might cost to live the lifestyle that they're living and just let them know what financial reality is.

Because what I find a lot is that kids or young adults, they graduate from college and then they're expecting to live the lifestyle that their parents have, even though it's took their parents 30 years of working to get there.

So help your kids to understand what reasonable expenses are and what they should be able to expect.

All right, have a great one.

Thanks, everybody.