The United States is still one of the easiest countries in the world to start a business and having you own business can be one of the most rewarding ventures you can do. You can make more money, have independence, fund retirement accounts and have fun doing it. If you don’t currently have a business, start one.

One of the most powerful business strategies we have taught for years is to employ your dependent children through your business. This one strategy creates numerous benefits. First, you can prepare your child for adulthood by teaching him or her that labor and investment, not entitlements, are the true ways to generate wealth. Second, in many cases, you can pay your child wages that is tax-free to them and 100% tax deductible to you. And by paying your children a wage for services, your child will have “earned income” which is a fancy IRS term that means they can contribute to a retirement account, such as a Roth IRA.

Have your child fill out Forms W-4 and I-9. The W-4 is used to determine how much in Federal income taxes should be withheld from an employee and the I-9 is used to verify that the employee can legally work in the United States. Both of these forms should be filled out completely and filed in your payroll records. You can download a copy of W-4 at irs.gov, and you can obtain a Form I-9 by calling 1-800-870-3676 or at www.uscis.gov.

If your child had no tax liability last year and expects to have no tax liability this year, have them write EXEMPT on line 7 of the W-4 and you will not have to withhold any Federal income taxes on their checks. In addition, a special provision in the IRS code allows parents to not withhold or pay any Social Security, Medicare or Federal unemployment tax either, if they employ their children (under age 18) through their unincorporated business. This great law allows you to pay your children money for work completed without costing you an additional cent in taxes.

A child’s wages are deductible by a parent-employer if: 1) the work is dones in connection with the parent’s trade, business or income producing property (i.e.rentals), 2) the child actually does the work and 3) the payments are actually made. And the payments must be reasonable in relation to the services rendered so good recordkeeping is a must when employing a child. Have the child fill out time sheets each payroll period documenting the time worked and set up a payroll system to pay your child a fair wage and at regular intervals (weekly, monthly). You should not pay your child an unrealistic wage or pay them in a lump sum at the end of the year. And, have them do the work.

By employing your children, you can pay them up to $5,700 (Standard deduction for 2010) completely tax-free to them and you get to take up to a $5,700 business deduction as wages. You can also still claim them as a dependent on your tax return.

Because your child will now have "earned income" by working in your business, they qualify to open and contribute up to $5,000 to an IRA. A great strategy is to motivate your child to contribute the maximum to a Roth IRA every year, even if you have to gift the money to your child. By doing this strategy even for only three years, you can create a tax-free retirement account for your child worth thousands and eventually maybe millions.

Assume you employ your child for the years they are 13, 14 and 15 years of age and pay them at least $5,000 a year and they contribute $5,000 into a Roth IRA each year. If they never contributed another penny for the rest of their lives and the investment earns only a 6% average per year return, your child will have an account worth hundreds of thousands of dollars by the time they are 65 years old and the money will be completely tax-free!

By implementing this one strategy, you can lower your current taxes; help your child set up a tax-free retirement account and have fun building a business with your child. Even if you have multiple children, you can employ them all as long as you follow the rules.