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Family Management Companies (FMCs) help business owners allocate income to minor children and reduce FICA taxes. This strategy explains the process and benefits of establishing an FMC for enhanced tax efficiency.

Implementation:

 

  • Create a Family Management Company

Sole Proprietorship: Wages paid to your children under 18 are exempt from Social Security and Medicare taxes.

 

  • Assign Real, Age‑Appropriate Work & Track Hours

Give each child genuine business tasks, log their hours daily, and keep time‑sheets or digital logs as proof.

 

  • Pay Your Children

For children under 18, pay your child by simply transferring money from the business account to the Family Management Company. The Family Management Company will then pay the children to their accounts. You do not need to issue a 1099 or W-2 to the child.

 

  • Maintain Records & Monitor Tax Thresholds

If they earn less than the standard deduction amount ($15,000 in 2025), they won’t owe federal income taxes. So, no action is needed, you’re not required to file a tax return. If your child earns more than the standard deduction, they will need to file a tax return.

Keep all time‑sheets, pay records, and task descriptions

 

family management company

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