7 Tax-Saving Strategies for Families

Hire Your Children in Your Business

One strategy I consistently recommend to business-owning clients involves hiring their children through the company. If you own a sole proprietorship or an LLC with similar tax treatment, and your child is under 18, you can pay them fair compensation for legitimate work without paying payroll taxes. I worked with a family who employed their 13-year-old daughter to handle product photography and order fulfillment. We carefully tracked her hours and paid her just below the standard deduction threshold, which meant she paid zero income tax.

The parents claimed the full deduction through their business while their daughter owed nothing in federal taxes. They smartly directed part of her earnings into a Roth IRA, giving her an incredible head start on retirement savings. This approach transformed routine family help into a significant financial advantage, all while maintaining complete tax compliance.

The way I see it, when your child reaches working age and you already cover their expenses, you can convert that support into structured income they actually earn. This reduces your tax burden, teaches valuable responsibility, and keeps more money circulating within your family.

Fund 529 Plans for Education Savings

One tax-saving strategy I consistently recommend for families with children is funding 529 education savings plans. These accounts offer significant tax advantages while providing for future education expenses.

With a 529 plan, contributions grow tax-free, and withdrawals remain tax-free when used for qualified education expenses. Parents can contribute up to $19,000 per child annually (the 2025 gift tax exclusion) without using any lifetime exemption. For married couples, this doubles to $38,000 per child annually.

Utilize Roth IRAs for Kids

A Roth IRA is one of the best strategies for families with kids. My name is Nik Patel, and I’m a CPA with my own tax advisory firm. One of my best strategies is figuring out a way to get your kids to have Roth IRAs. This is a fantastic way for business owners to pay their kids, get a tax deduction, have it tax-free for the kids, and grow it tax-free in a Roth IRA.

Maximize State-Sponsored 529 Plan Benefits

Many families reduce their taxable income and secure tax-free growth by contributing to a state-sponsored 529 college-savings plan. Before deciding on the contribution amount, it’s helpful to consider four key questions about your situation:

1. Where do you file taxes? State tax deductions or credits for 529 contributions vary widely—some allow up to $5,000 per filer, while others offer more or none at all.

2. What is your income level? Higher-bracket taxpayers see greater state-tax savings per dollar contributed, while lower-income households still benefit from tax-free compounding.

3. How old are the children? Younger children mean more years for earnings to accumulate tax-free, so many families front-load contributions when children are young.

4. Which benefit matters most? Are you seeking an immediate deduction, long-term tax-free withdrawals, or both? Your objectives will guide contribution timing and amount.

Consider a household with two young children that invested $8,000 into their state’s 529 plan in January. Because their state allows up to $8,000 per filer as a deduction, they reduced their state tax bill by approximately $300 that April. Over the next 15 years, that $8,000—compounding tax-free—could grow to over $20,000. When college arrives, qualified distributions won’t count as taxable income, easing tuition costs without incurring additional tax liability.

Combine 529 Plans with Real Estate Strategies

As a commercial real estate professional, I’ve found 529 College Savings Plans to be incredibly powerful for families. In Alabama, contributions are state tax-deductible up to $10,000 annually for joint filers, providing immediate tax savings while the investments grow tax-free.

I personally restructured my investment approach when my daughter was born. Instead of putting certain real estate profits into traditional investment accounts, I redirected them to her 529 plan. This saved us approximately $500 in state taxes annually while creating a dedicated education fund that grows tax-advantaged.

For real estate investors with children, consider hiring your kids legitimately in your business once they’re old enough. My colleague pays his 14-year-old for administrative tasks at his MicroFlex property – the first $12,950 (standard deduction) is essentially tax-free to the child, and it’s a legitimate business expense for the parent’s company.

The key is documented, age-appropriate work with market-rate compensation. This strategy builds your child’s work ethic and financial literacy while creating tax advantages for your family.

Start Small with 529 Contributions

I started 529 plans when my kids were babies, putting in $200 monthly for each, and the tax deductions have already saved us around $1,800 on state taxes. What really surprised me was learning I could change beneficiaries between my kids if needed, which gave us more flexibility. I suggest starting even with small amounts – I wish I’d known earlier that even $50 monthly contributions add up while reducing your tax bill.

Leverage Rental Property Depreciation for Families

One tax-saving strategy that is often overlooked by real estate investors with families is leveraging depreciation on rental properties and using cost segregation to identify assets with shorter recovery periods. I employed this strategy when we purchased a 4-unit rental property, conducting a cost segregation study that accelerated depreciation on certain components such as appliances, carpets, and fixtures. This allowed me to front-load deductions—resulting in over $7,000 in additional paper losses in the first year.

Because my effective income decreased, our family qualified for larger child tax credits and was able to keep health insurance costs lower under ACA guidelines. That extra tax savings (a few thousand dollars) went directly into a family vacation fund and children’s activities, providing real dollars that made an immediate difference.

If you’re balancing child expenses with building passive income, consider how accelerated depreciation or bonus depreciation can offset rental income. It’s a proven method to maximize both your tax efficiency and your family’s opportunities in the short term.