Employing Your Kids and Bald Eagles
In this edition of the Flying Point Update we're going to talk about tax season, the strategy of employing your children through your business, and bald eagles.
Top of Mind
Tax season is in full swing, and I'll be honest: I like this part. Documents are flying in, questions are coming from every direction, and there's a particular kind of energy to the work that I find genuinely engaging.
The questions this time of year are good ones. People are paying attention to their finances in a way they might not be in July, and the conversations tend to be substantive. I learn something new almost every week, whether it's a nuance I hadn't considered before or a specific situation I haven't encountered in quite that configuration. Tax law is deep enough that there's always something worth thinking carefully about.
What strikes me every tax season is that the code, despite being spectacularly complex on the surface, is usually pretty reasonable at its core. Most tax questions, once you strip away the jargon and the arcane calculations, come down to a few basic questions: What actually happened here economically? Is there reasonable documentation to support it? Then we apply the rules.
The trouble almost always starts when people drift away from that framework, shading the facts or structuring things in ways that don't reflect economic reality in hopes of a tax benefit. That's where things get uncomfortable quickly. As I've said before, in Chasing Deductions and Flying Squirrels and Frivolous Tax Arguments and Yellow Perch, the healthiest approach to taxes is pretty boring: do what makes sense for your life and your business, take the legitimate benefits that come with that, and don't contort your decisions around tax outcomes. When you start making decisions that only make sense on a tax return, you're usually heading somewhere you don't want to be.
Worth Knowing
One question that's come up more than a few times this season is about hiring your children through your business. It's a real strategy with genuine tax benefits, and it's also one where the economic substance piece matters enormously.
Here's how it works: if you run a legitimate business, you can employ your children and pay them reasonable wages for actual work. Those wages are deductible business expenses for you, and your child pays little or no income tax on that earned income, since the standard deduction for 2025 is $15,750 for a single filer, and going up to $16,100 for 2026. For a sole proprietorship or a partnership where both partners are the child's parents, wages paid to children under 18 are also exempt from Social Security and Medicare taxes. That's a meaningful combination of benefits.
The key phrase is "actual work." The IRS requires that the work be real, the wage be reasonable, and the documentation support both. A 14-year-old who genuinely helps with filing, data entry, social media posting, or cleaning the office can be a legitimate employee. You'll want a job description, a record of hours worked, pay stubs, and wages that reflect what you'd pay any employee for the same work. That last point is worth emphasizing: you can't pay your 10-year-old $100 an hour to do marketing strategy. The wage needs to be reasonable for the age, the role, and the actual tasks performed.
The benefits to the child extend beyond the immediate tax savings, too. Earned income is required to contribute to a Roth IRA, so a child with legitimate wages can start building tax-free retirement savings early. Even modest annual contributions over many years can compound into something significant by the time they reach retirement age.
This strategy works well when it reflects something real. A family business where kids are genuinely involved in age-appropriate tasks, paid fairly, and documented properly is entirely legitimate. A business owner writing checks to their child for work that never happened, or that a child of that age couldn't plausibly do, is a different situation entirely. The IRS is familiar with this strategy and looks for exactly the kind of substance we've been talking about.
If this is something you're interested in exploring, it's worth a conversation to make sure the structure makes sense for your specific situation. And, before anyone asks, Flying Point Advisors’ team of naturalists are not paid employees…
Mark Your Calendar
March 15th: S-corp and partnership tax returns are due, or extensions must be filed. This is also the deadline to file Form 2553 if you want to elect S-corp status for 2026. If you've been thinking about an S-corp election, the window is closing fast.
April 15th: Individual returns are due. This is also the deadline for IRA contributions for 2025 and Q1 2026 estimated tax payments.
Maine Wildlife Facts
We have bald eagles that nest near our house. Will and Frank have become somewhat casual about the whole thing, which I find both impressive and a little funny. Most people would stop what they're doing to watch a bald eagle. My kids now look up, say "eagle," and go back to whatever they were doing.
Maine's bald eagle population is one of the genuinely good environmental stories of the last fifty years. By the early 1960s, there were fewer than 30 nesting pairs left in Maine, largely due to DDT, which caused eggshell thinning and reproductive failure across the species. After DDT was banned in 1972 and the bald eagle received federal protection, the recovery was remarkable. Maine now has closer to 800 nesting pairs, and the species was removed from the federal endangered species list in 2007.
Bald eagles mate for life and return to the same nest year after year, adding to it each season. Those nests can grow to enormous sizes over time, up to 10 feet across and weighing hundreds of pounds. The birds we see near our house have a territory that covers several miles of shoreline and river, and they're particularly active this time of year as nesting season gets underway. Right now, as this newsletter goes out, the eagles are likely putting the finishing touches on their nest ahead of egg-laying in early April.
Will can do an impressively accurate eagle impression. Frank is still hoping one will land close enough to pet, which is not at all surprising to me.
These Maine wildlife facts have been brought to you by Will (7) and Frank (4), Flying Point Advisors' on-staff naturalists.
Questions about any of this? Just reach out - I read every email and love hearing from you. Thanks for reading. You'll hear from me again in about two weeks.
-Mike
Disclaimer
The Flying Point Update is provided for general educational and informational purposes only. The content in this newsletter reflects my thoughts and observations on tax, accounting, and financial planning topics, but should not be considered personalized tax, accounting, or investment advice for your specific situation.
Tax laws are complex and change frequently. The information presented here is based on current tax law as of the publication date and represents general concepts that may not apply to your circumstances. Every individual and business has unique factors that affect their optimal tax and financial planning strategies.
Before making any financial decisions or implementing any tax strategies discussed in this newsletter, please consult with a qualified tax professional, CPA, or financial advisor who can evaluate your specific situation. If you'd like to discuss how any of these topics might apply to your circumstances, I'm always happy to chat.