Answer extracted from the Proven Podcast — listen to the full episode below.
How to Pay Family Members Through Your Business Tax-Efficiently?
You can pay your children just over $15,000 per year as a tax deduction to your business while it remains completely tax-free to the child, and you retain full control of that money. Additionally, structuring a family company allows you to claim personal write-offs instead of stripping your main business of deductions—a critical strategy if you have partnerships or other employees involved.
Maximizing Family Income Without Triggering Tax Liability
The $15,000 threshold represents a powerful opportunity many entrepreneurs overlook. When your child receives wages from your business in that range, the business claims a legitimate deduction, reducing your taxable profit. For the child, the income falls below the filing requirement threshold, meaning no personal tax burden whatsoever.
This approach accomplishes multiple goals simultaneously: your business reduces its taxable income, your child accumulates earnings without tax consequence, and the funds stay under your control until your child is ready to use them. As Garrett Gunderson explains in the Proven Podcast, this isn't a workaround—it's squarely within the tax code and perfectly legal when properly documented.
The Family Company Structure: Protecting Your Write-Offs
Beyond paying your children, creating a separate family company entity serves a more strategic purpose: it preserves your personal deductions without bleeding into your main business structure.
Many entrepreneurs encounter a critical problem: when they have partnerships, multiple employees, or complex ownership structures, personal write-offs (business use of home, vehicle expenses, professional development) can disqualify the primary business from claiming them. By routing these deductions through a dedicated family company, you maintain clean tax profiles across all entities. This separation becomes especially important for partnership agreements and employee relationships, where commingled deductions can create compliance issues.
The family company can invoice the main business for legitimate services or rent, creating a formal paper trail that satisfies IRS scrutiny. This structure also simplifies succession planning and keeps your children involved in the business mechanics while they're building wealth. Gunderson details this coordination in the full episode, emphasizing how coordination between your tax strategist and attorney determines whether these structures actually deliver their tax benefits.
"Delaying tax and saving tax are completely different things. So really, there's this easy framework."
Garrett Gunderson — Financial Entrepreneur, Author, and Wealth Strategist. Gunderson has guided thousands of business owners toward lasting prosperity by maximizing cash flow and economic efficiency. He has authored 10 books, four of which rank in Amazon's top 100 categories, generating ongoing royalties since 2008. He currently leads Multiplier, a comprehensive financial education platform combining weekly coaching, a financial networking app, and advanced planning tools evolved from workbook-based systems into digital-first intellectual property.
For a deeper dive into how entity selection impacts your entire exit strategy—including tax-free exits of up to $7.5 million under Section 1202—listen to the episode on Listenly.
Key takeaways
- Pay children just over $15,000 yearly as a business deduction with zero tax liability to them, while you retain control of the funds.
- A family company structure isolates personal write-offs from your main business, preventing deduction conflicts in partnerships or multi-employee setups.
- Proper documentation and coordination between tax strategist and attorney are essential to make these structures IRS-compliant and enforceable.
- This strategy works hand-in-hand with larger wealth-building frameworks like Section 1202 exit strategies, requiring integrated planning from the start.
See also
What is the tax-free exit strategy using Section 1202 for C Corporation owners?
If someone is a C corporation that has been in operation for at least three years, they could sell for up to $7.5 million tax-free using Section 1202. If they've been in business for five years, that's $15 million tax-free per partner.
What are the key components of a coordinated financial and legal tax strategy team?
You need four core components: first, timely financial data through a CFO, controller, or bookkeeper; second, a tax strategist to maximize tax deductions; third, an attorney to ensure entity structure alignment; and fourth, integrated coordination across all three disciplines.
How can business owners take advantage of Section 280G for residential rental deductions?
Section 280G allows you to rent your home out for 14 days to your business, write it off as a business expense, and not claim it as personal income. Most business owners don't know this deduction exists.