Hire your kids, cut your taxes

You can hire your kid to work for you and cut your income tax. Your kid will have to pay taxes on the money you pay them only to the extent it exceeds the standard deduction (currently $5,000). But even if they have to pay taxes, they'll pay at a much lower rate than you will.

Here's how the three-step hiring process works:

1. Hire your children to work for your unincorporated business. If they are under age 18, you don’t have to pay Social Security or Medicare tax. The courts already have ruled that you can deduct taxes for any "reasonable wages" that you pay your children ages 7 or older to perform duties related to your work. The key is to get your "business" off the ground and show a "profit objective." So long as you can establish a profit objective, you don't have to actually make a profit to claim the deductions.

2. Substantiate the deduction. This means you've got to keep records. Put your children on a time clock, punching in and out or writing their time down on a time sheet. Pay the children with a check. It’s recommended that you write to your state Department of Labor asking if the hiring of your children in your unincorporated businesses would violate any state child labor laws. Keep copies of the letters.

3. Provide the children with W-2s at the end of the year. You need to give them a real report of what they were paid and send a copy to Uncle Sam.