Pay your children when they perform legitimate work in your business. If you planned on giving them money anyway, this is a fantastic way to give them wages that are tax deductible to your business, tax free to them (up to the $5,000 standard deduction), and you still get to claim your children as dependents on your personal income tax return. And for wages in excess of $5,000, their beginning tax rate is only 10%.

Just be certain that you pay them contemporaneously (not just at year end) and in the same manner as other employees – on a regular basis by check.

One additional note: You can also hire your parents to give them tax deductible (before tax) dollars from your business, also provided they do legitimate work for your business. The value of this strategy assumes that you are going to give them money anyway (typically for their living expenses). You will be able to pay your parents with tax-deductible dollars from your business, instead of after-tax dollars from you, personally. And because you are paying them with your business' before tax dollars, there are more of these dollars to give them than you otherwise would have for them.

Click Here for assistance in implementing this "Tax Tip" (as well as other small business tax saving strategies)