Can we both pay our son for his work

My husband is a self-employed recruiter and I am a self-employed bookkeeper. Our businesses are separate, and we work out of our home and because both businesses have relatively low overhead we are being eaten alive by income and self-employment taxes.

A client of mine (also self-employed) was told by his CPA that he could pay his 13 year old daughter up to $4000+ annually for her work and not pay SS/Medicare taxes.

My question is: could my husband's business and my business both pay our 14 year old son separately for work (which he now does for us for nothing) annually? If we can, what is the limit we can pay him to avoid income taxes? I know we have to issue a W-2 to him for any wages paid.

Thanks for any help or direction you can give us. Our CPA is not clear about this and is not much help. Also, are there IRS publications that address this?

A sole proprietor can hire his/her child for legitimate work without having to pay Social Security and Medicare tax. In addition, the wages will be free of income tax up to $4,850 (in 2004). Income above that amount is subject to income tax, but starts out in the 10% bracket, which is usually lower than the tax rate of the parents. Earned income can be contributed to a Roth IRA, which gives the family unit an additonal tax benefit (tax-free growth of investments).

Here's a link to an article that explains the basics (the standard deduction amount in the article is for 2003, not 2004): http://www.barbarabrabec.com/HOMEBIZarticles/JBlock-payingKids-taxes.htm.

The IRS tends to be suspicious of wages paid to children, so you should ensure the child is doing legitimate work and it is a good idea to keep a record of the time worked to justify the wages.

Regards,