Consider hiring kids in a small, family-owned business. There may be special tax breaks that apply. If the business is a sole proprietorship or a partnership (with the parents as the only partners), there are no Social Security or Medicare taxes due if the child is under age 18. If the child is under age 21, there are no unemployment taxes owed either.

In addition to the wages being exempt from various payroll taxes, income earned by a child, up to the standard deduction amount for a single taxpayer, is exempt from federal income taxes. Any money paid as wages to children also reduces a parent's taxable business income.

The Tax Court has allowed deductions for wages paid to kids as young as 7! Use creativity when assigning jobs. Children can perform many small tasks like filing, copying, and research. However, make sure the child performs real work and is paid a reasonable wage (usually no more than $10 per hour). Keep good records that show that the compensation paid is reasonable for the work being done.

Note that corporations or larger partnerships (with more than just the parents as partners), must comply with child labor laws and any wages paid are generally subject to Social Security and Medicare taxes.