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Starting Business to employ children

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  • Starting Business to employ children

    I think we all would like to start ROTHs for our children. 50-60 years of tax free growth would be amazing.  But, for employed physicians who are W2, this is challenging.  I have been running an idea though my head.  I know the logistics wouldn't be simple, but I was hoping to crowd-source advice.

    Basically, the business model would be a blog I start.  I would "employ" any of your children, provided you pay an application fee or something like that.

    So, let's say Dr. X wants to have some earned income for his 2 year old.  Dr. X contracts with me.  For a $500 application fee, I then purchase pictures of the child for use on my blog.  I pay the child the going rate, but the hope would be to pay them 90% of the initial fee.  (10% kept for overhead and logistics).  So, Dr. X pays $500 to obtain $400 worth of child earnings, which would not need to be reported or taxes paid for their child, but that money could then be put into a ROTH and grow tax free for decades.

    What do you think?  Would you be interested in an arrangement like that?

  • #2
    Sounds like the IRS would have a problem with this.


    • #3
      I don't pretend to know the ins and outs of the IRS laws regarding this but I suspect you have a 0% chance of this working out long-term.


      • #4
        no I would not be interested in putting pictures of my kids on your "blog"


        • #5
          Maybe a new business model for this isn't the best idea.  But maybe an established business like WCI or POF would be willing to hire my child for a modeling, or something like that?  I would give you an amount higher than that as a gift or business income, and you can give my child an amount negotiable lower than what I give you in exchange for the service.  So, it generates a small profit for the business and the child gets earned income to put in a ROTH.


          • #6
            I think you could legitimately try to fine legitimate earned income for your children. I would focus on that and not involving other people, which sounds like a scheme.


            • #7
              No, I would not be comfortable with this, especially when you can get pictures of kids who are professional models for 1/10th of that or less. Or the kid next door for free. Doesn’t pass the necessary and ordinary test and screams tax sham. Also believe the step doctrine would come into play.

              I think what many people don’t realize, probably because we complain about government waste so often, is that our system of taxation is, by and large, quite logical and fair. I like it that way, even if I don’t always agree with, or respect, our lawmakers.
              My passion is protecting clients and others from predatory and ignorant advisors 270-247-6087 for CPA clients (we are Flat Fee for both CPA & Fee-Only Financial Planning)
              Johanna Fox, CPA, CFP is affiliated with Wrenne Financial for financial planning clients


              • #8
                Unless you are itching for an audit, I would not dream of such a scheme.


                • #9
                  WCICON24 EarlyBird
                  or you can just wait until they are old enough (teens) to be legitimately employed, and start a roth then.

                  they will miss ten years (not much in the grand scheme) but still have a Roth (plus well-off, educated parents).