When you hire your own child, the government can apply close scrutiny to ensure that the arrangement is legitimate. The Tax Court has made it clear that if you want to deduct expenses paid on behalf of your child and treat it as deductible compensation, you must demonstrate that work was actually performed and that the compensation for it was reasonable. In one recent case, a mother’s consulting business failed to do so; she couldn’t deduct her outlays and also was subject to an accuracy-related penalty.
New blog posted today! What Does an Improved Economy Mean for You?
