How to Legally Pay Your Kids Through Your Real Estate LLC
What if you could teach your kids about real estate investing, give them real work experience, AND create a tax deduction for your business? You can, and it's completely legal when done correctly.
If you own rental properties through an LLC and want to put your kids to work, you're not alone. Thousands of real estate investors hire their children for legitimate business tasks. It teaches kids valuable work skills while creating tax advantages for the family.
But doing it correctly matters. The IRS scrutinizes family employment arrangements, so you need to understand the rules before writing that first paycheck.
This guide walks you through everything you need to know about paying your kids through your real estate LLC in 2026, including our own family's experience doing exactly this.
Our Family's Experience: Dylan Has Been Working Since Age 5
Before we dive into the rules, let me share our personal experience.
We've been paying our daughter Dylan since she was 5 years old for helping with our real estate business. Yes, five. And it's been one of the best decisions we've made as a family.
What does a 5-year-old do for a real estate business?
At first, the tasks were simple:
- Organizing office supplies
- Shredding documents
- Sorting mail
- Helping "clean" rental properties (supervised, of course)
As she's grown older, her responsibilities have expanded:
Due Diligence Tasks: Dylan helps us review property photos, look at Google Street View for potential acquisitions, and gives her opinion on neighborhoods. She's surprisingly good at spotting issues in listing photos.
Office Help: Filing documents, labeling folders, organizing receipts by property, and restocking our office supplies.
Tax Prep Support: Sorting receipts by category, matching expenses to properties, and helping organize our documentation for our CPA.
General Organization: Keeping our property files organized, updating our property binders, and maintaining our systems.
Is she a full-time employee? Of course not. But she legitimately helps with our business, learns valuable skills, and earns money that we can put toward her future.
Why Pay Your Kids Through Your Real Estate Business?
Hiring your children for real business work offers several benefits.
For Your Kids
- Learn responsibility and work ethic early
- Gain real-world business and real estate experience
- Start building earned income for Roth IRA contributions
- Develop financial literacy before they leave home
- Understand how real estate investing works firsthand
For Your Business
- Wages paid are a deductible business expense
- Get help with legitimate tasks that need doing
- Keep money in the family while reducing taxable income
For Your Family
- Shift income from your higher tax bracket to your child's lower (or zero) bracket
- Potentially save on payroll taxes depending on your business structure
- Build your child's financial foundation early
- Create teaching moments about money, work, and investing
How Tax Treatment Depends on Your LLC Structure
Not all LLCs are created equal when it comes to hiring your kids. The tax treatment depends entirely on how your LLC is taxed.
Single-Member LLC (Taxed as Sole Proprietorship)
This is the most favorable structure for hiring your children.
If your child is under 18 and works for your single-member LLC:
- No Social Security tax (employer or employee portions)
- No Medicare tax
- No FUTA (federal unemployment) tax until age 21
Your child can earn up to the standard deduction amount ($16,100 in 2026) without owing any federal income tax. You deduct their wages as a business expense.
Multi-Member LLC (Taxed as Partnership)
If your LLC is a partnership where both partners are the child's parents, the same favorable rules apply. No FICA taxes for children under 18 and no FUTA for children under 21.
However, if your LLC partnership includes anyone other than the child's parents, the payroll tax exemptions do not apply. You will need to withhold and pay all standard employment taxes.
LLC Taxed as S-Corp or C-Corp
If your LLC has elected to be taxed as an S-Corporation or C-Corporation, the FICA exemption does not apply regardless of your child's age.
You'll need to:
- Withhold Social Security and Medicare taxes
- Pay the employer portion of FICA
- Handle payroll like any other employee
The wages are still deductible, and your child may still be in a lower tax bracket, but the payroll tax savings disappear.
Consult your CPA about whether your current structure makes sense or if adjustments could benefit your family.
Age-Appropriate Tasks for Real Estate
The IRS requires that work be legitimate and wages be reasonable. You can't pay your child $50/hour to do nothing, and you can't deduct payments for household tasks unrelated to your business.
Here are legitimate real estate business tasks by age:
Ages 5-9
- Shredding old documents
- Organizing office supplies
- Simple filing and sorting
- Helping clean or organize at properties (supervised)
- Sorting receipts by property
- Stamping or labeling envelopes
Ages 10-13
- Data entry for property expenses
- Organizing property files and binders
- Helping with due diligence (reviewing photos, Google Street View)
- Basic spreadsheet work
- Inventory organization for supplies
- Taking photos at properties
Ages 14-17
- Social media management for your rentals
- Responding to tenant inquiries (with oversight)
- Bookkeeping and expense categorization
- Creating listing content and photos
- Website updates
- Administrative support for property management
- Coordinating with vendors (scheduling, confirmations)
Ages 18-21
- Most business tasks appropriate for any employee
- Note: The FICA exemption no longer applies at 18 for LLCs taxed as sole proprietorships or partnerships
The key question: Would you pay someone else to do this task? If yes, it's likely legitimate. If you're inventing work just to justify payments, the IRS may disallow the deduction.
Real Work, Real Learning: Dylan at the Rental Property
This is Dylan helping us paint at one of our rental properties. She's not just "playing painter" — she's doing real work that contributes to the property's turnover.
When we have a unit turning over, Dylan helps with tasks like:
- Painting baseboards and touch-ups (she's actually pretty good!)
- Cleaning and organizing supplies
- Taking before/after photos for our records
- Helping inventory what needs to be purchased
These hands-on tasks teach her about property maintenance while creating legitimate work hours we can document. She sees firsthand what goes into maintaining rental properties, and she takes pride in contributing real value.
The key is that these are tasks we would otherwise pay someone else to do — or do ourselves. By involving Dylan in age-appropriate work at our properties, she learns skills, earns income, and understands that real estate investing involves real work.
How This Ties Into REPS and Material Participation
If you're pursuing Real Estate Professional Status or the STR loophole, there's an important distinction to understand.
Your child's hours do NOT count toward your REPS qualification. Only your personal hours (and potentially your spouse's for material participation) count toward the 750-hour test and material participation tests.
However, paying your child creates a legitimate business deduction that increases your rental losses, which can then offset your income once you qualify for REPS or STR material participation.
The two strategies work together:
- Qualify for REPS or STR loophole to make losses non-passive
- Maximize legitimate deductions (including child wages) to increase those losses
- Use non-passive losses to offset W2 and active income
Step-by-Step: How to Set It Up
Step 1: Verify Your LLC Structure
Confirm how your LLC is taxed (sole proprietorship, partnership, S-Corp, or C-Corp). This determines your payroll tax obligations.
Step 2: Create a Job Description
Document the role in writing with:
- Job title
- Specific duties
- Hours expected per week
- Hourly rate
This isn't just good practice. It's essential documentation if the IRS ever asks questions.
Step 3: Determine a Reasonable Wage
Research what you'd pay a non-family member for similar work. For younger children doing simple tasks, minimum wage or slightly above is typically reasonable. For teenagers with real skills, market rates may be higher.
Step 4: Track Hours Worked
Maintain accurate records showing:
- Date worked
- Hours worked
- Tasks performed
This is critical documentation. Just like tracking your own hours for REPS qualification, you need contemporaneous records of your child's work.
Step 5: Pay Your Child and Document It
Pay your child through a traceable method like check, direct deposit, or a payment app with records. Avoid cash payments since they're harder to document and raise red flags.
Step 6: Work with Your CPA on Tax Filings
Your CPA will handle quarterly payroll tax filings if required, year-end W-2 preparation, and proper reporting on your business tax return.
Common Mistakes to Avoid
Paying for household tasks. Mowing the lawn at home, doing dishes, or cleaning your house are not deductible business expenses even if you work from home. The work must be for your real estate business.
Overpaying. Paying your 10-year-old $30/hour raises red flags. Keep wages reasonable for the work performed and your child's age and skill level.
Poor documentation. No time records? No job description? No proof of payment? The IRS may disallow the entire deduction.
Inconsistent payments. Paying your child $5,000 in December with no payments the rest of the year looks suspicious. Establish a regular pay schedule that reflects actual work performed.
Ignoring state rules. Some states have additional requirements for employing minors, including work permits and hour restrictions. Check your state's labor laws.
How Kids Payroll Can Help
We're so passionate about this strategy that we're building an app specifically for it.
Need help managing payroll for your kids? Kids Payroll is the only app built specifically for hiring your children compliantly.
The app helps you:
- Track work hours with a kid-friendly interface
- Choose from age-appropriate job templates
- Calculate earnings automatically
- Export audit-ready documentation with one click
Your CPA handles the tax filings. Kids Payroll gives them everything they need in a clean, organized format.
Join the Kids Payroll waitlist →
FAQ
Can I pay my child through my LLC if they're under 10?
Yes. There's no federal minimum age for a child to earn income. However, the work must be age-appropriate and legitimate. A 7-year-old can shred documents or organize supplies, but complex tasks aren't realistic. We started Dylan at age 5 with simple tasks and have grown her responsibilities over time.
Do I need to pay my child minimum wage?
Federal law doesn't require minimum wage for children working in their parents' business. However, paying at least minimum wage strengthens your documentation and makes the arrangement look more legitimate to the IRS.
Can my child work unlimited hours?
Child labor laws still apply. Check your state's requirements for work permits and hour restrictions, especially during the school year.
What if I get audited?
If the IRS questions your child's employment, you'll need to provide:
- Job description
- Time records showing hours worked
- Proof of payment
- Evidence the wages were reasonable
This is why documentation matters from day one.
Can I open a Roth IRA for my child with these earnings?
Yes! Children with earned income can contribute to a Roth IRA (up to their earnings or the annual limit, whichever is less). This is a powerful way to start building tax-free wealth early.
Conclusion
Paying your kids through your real estate LLC is a legitimate strategy that benefits everyone when done correctly. Your children learn about work, money, and real estate. Your business gets help and a tax deduction. And your family keeps more money while building your kids' financial foundation.
We've been doing this with Dylan since she was 5, and watching her understand how our real estate business works has been incredibly rewarding. She knows what due diligence means. She understands why we track expenses. She's learning skills that will serve her for life.
Key Takeaways:
- Your LLC structure matters - Single-member LLCs and parent-only partnerships get the best tax treatment
- Work must be legitimate - Real tasks at reasonable wages
- Documentation is everything - Job descriptions, time records, traceable payments
- Start young, start simple - Age-appropriate tasks that grow with your child
- Work with your CPA - Get professional guidance for your specific situation
Ready to start paying your kids compliantly? Join the Kids Payroll waitlist and check out more resources on paying kids through your LLC.
Disclaimer: This article is for educational purposes only and does not constitute tax or legal advice. Consult a qualified CPA or tax professional for guidance specific to your situation.
