Paying your children to work in the family business? How much pay is too much?

It’s important to remember that when your family business sets compensation for family members, the IRS may be looking over your shoulders.  Why?  The IRS may disallow the deductibility of salaries and other compensation if it determines that the compensation is higher than “reasonable.”  The family business discussed in this article by Michael P. Connolly from the National Law Review recently learned a hard lesson in the U.S. Tax Court.  There are some good tips to be learned from their experience—including proper use of compensation analyses by experts, the need for bona fide job descriptions, proper education and training for the job, and awareness by family members who are employees of the requirements of their employment.  Click here to read the full article.

Keith Baldwin is a business transactions and securities lawyer with a forty year history of serving clients’ legal needs. Keith focuses his practice on business relationships, including mergers and acquisitions, agreements among owner-entrepreneurs, and best practices for corporate governance. Keith can be reached via email at keithbaldwin@dwt.com or directly at 425.646.6133.