Question: Dad, could you tell me something that seems illegal, but isn't?
Dad: Absolutely! Each year, I pay your 7-year-old brother $18,000 of tax-free income to work for me.
Question: Uh, Dad, that is illegal?
Dad: No, it's taking advantage of small business deductions.
Question: What's the catch?
Dad: The job has to be safe, he has to be paid fairly, and it has to be appropriate for his age.
Question: I thought the tax-free limit was $12,000 per child.
Dad: It is, but I put an additional $6,000 into an IRA for him.
Question: And he gets $18,000 tax-free?
Dad: Yup. And you get an $18,000 small business deduction?
Dad: Yup. Keeping it in the family. That's why it pays to know the tax code, son.