If your child is under 18, you can pay your child up to 5,000 in wages a year without incurring most income taxes, most employment taxes, and you still get to write it off as a business expense on your own tax return! Many small business owners are unaware of this wonderful tax loophole. Is your teenager begging for a car? Well, put her to work and allow her to make the money for herself, while still giving you a tax break! Isn't that a great deal?

There are a few rules you must follow. You must pay them a reasonable wage. You must also substantiate the deduction. You can do this by paying your child by check, and making them sign a timecard when they begin their workday. If questioned, you must also prove "reasonableness" for the deduction, so don't pay your 15-year old $5,000 to sweep your floor once a month. However, paying your child minimum wage to sweep floors is perfectly reasonable. For tax purposes, it is a good idea to treat your child like other employees (keep valid timecards, have a set schedule, etc).

A child's wages will be exempt from paying Social Security taxes if he (1) works in a family business, (2) works in domestic service, or (3) delivers newspapers.

This legal tax shelter is often overlooked. Hiring your children does not increase the chance of an IRS audit, and it allows taxpayers to show their children a good work ethic. Save money for yourself legally with this great deduction! So think about it-- can you hire your child? Remember, though-you have to be self-employed and own your own business. The business can be either a sole-proprietorship or a husband-and-wife partnership. This is a great tax tip for family businesses, such as restaurants, where children traditionally work and help their parents.

Christy Pinheiro is a tax practitioner and consultant. Christy is a published author, Enrolled Agent, and Accredited Business Advisor. Please see her website at http://www.christypinheiro.com/