Employing family members in a business is a legitimate tax strategy that the IRS recognizes — when done properly. For STR owners who operate their rental as a business, hiring children to perform genuine work may offer tax benefits worth discussing with your CPA.

How It Generally Works

Per IRS guidance on family employment, when you hire your child to perform genuine work for your business, the wages may be a deductible business expense. At the same time, a child may be able to earn up to the standard deduction amount without owing federal income tax.

For sole proprietorships and single-member LLCs where the child is under 18, wages may also be exempt from Social Security and Medicare taxes. However, the specific tax treatment depends on your business structure, your child's age, and other factors.

What Kind of Work May Qualify?

The work must be real, age-appropriate, and genuinely related to the business. For STR businesses, examples might include cleaning common areas, yard maintenance, laundry and restocking, helping with property photos, basic data entry, and similar tasks. The IRS requires that the work is actually performed and that compensation is reasonable for the work done.

Documentation Requirements

The IRS may scrutinize family employment arrangements, so thorough documentation is critical. This typically includes written job descriptions, time logs of hours worked, evidence that pay rates are reasonable for the work performed, and payments made via check or direct deposit (not cash). Your CPA can advise on the specific documentation and tax filing requirements for your situation.

Important Caveats

The rules vary depending on your business entity type (sole proprietorship vs. LLC vs. S-Corp vs. partnership), your child's age, and your state's labor laws. This is another area where the details matter enormously and professional guidance is essential. What works for one family's situation may not work for another.

DeductFlow helps you track these employment-related expenses alongside your other STR deductions, keeping everything organized for your CPA's review.