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Reasonable compensation for a child
originally posted: 11/22/2006
reposted: 2/18/2011 This post has not been recently
reviewed or revised by the author and may be out of date. If in doubt,
please send a new question or ask for an update.
Q:
What is reasonable compensation under IRS rules for a child who is on my business payroll?
A:
The compensation should not be more than the service could be obtained in the market. You may wish to document competitive bids for the work that your child does in order to justify a child's earnings in the event of an IRS audit. For example, if the child helps by stuffing envelopes for your office’s monthly mailings, then get bids from local mass marketing forms for performing the same service.
Summary
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