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Shaquille O’Neal recently said he moved his father from a roughly $60,000 Army salary to $500,000 a year, and handed his mother $750,000 — all legally, by putting them to work in his business empire. (1)
Cue the eye-roll: sure, that’s easy when you’re Shaq. But the tax rule underneath it isn’t just for the rich and famous. I’ve been a CPA since 1981, and I have run my own small business for decades — and the strategy Shaq used is one plenty of ordinary families can use in miniature.
Here’s the foundation. The IRS lets a business owner deduct reasonable wages paid to family members for legitimate work, just like any other employee. (2) And when the business is a parent’s sole proprietorship, wages paid to a child can carry special payroll-tax treatment on top of it. (3)
Done right, it shifts income from a higher tax bracket to a lower one and gets real work done — all inside the law. Done sloppily, it’s an audit waiting to happen. Let me walk through both.
1. What Shaq actually did
Strip away the zeros and it’s simple: Shaq owns businesses, his parents do real work for those businesses, and the businesses pay them a salary that’s deductible as a business expense. (1)
The pay has to be for actual work and has to be reasonable for that work. That’s the whole game — and it’s the same rule whether the paycheck is $500,000 or $500.
2. Why it’s legal — you can put family on the payroll
The IRS explicitly allows businesses to employ family members and deduct their reasonable wages. (2) Pay your spouse or your kid to do genuine work — bookkeeping, packing orders, running the website — and it’s a legitimate business expense.
There’s a bonus in the fine print: wages a sole proprietor pays to their own child under 18 are generally exempt from Social Security and Medicare taxes, and a child’s modest earnings are often taxed at a very low rate or not at all. (3)
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3. The smaller version your family can use
You don’t need an empire. If you run a side business — a rental, an Etsy shop, consulting, a food truck — you can hire your teenager to do real tasks and pay a reasonable wage.
The money moves from your tax bracket to theirs, they can use that earned income to fund a Roth IRA, and the work actually gets done. That’s the same engine Shaq used, just without the nine figures.
4. Get it right, or it backfires
The catch is documentation. Real job, reasonable pay, actual hours, a paper trail, and a real paycheck — not a gift you relabeled. Overpay a relative for a no-show job and you’ve handed the IRS its case.
This is exactly where a good money pro pays for themselves. To find one, use a free service like SmartAsset. They match you free with up to three fiduciary advisors — pros legally required to put your interests first — who can tell you whether a family-payroll setup fits your situation and how to document it.
Got $100,000 or more in investments? Get matched with a fiduciary advisor free.
5. Don’t stop at the payroll — grab the other legal breaks
Family wages are one legal tax move. Another most people skip is the health savings account, if you’re on a high-deductible plan — money that’s tax-free going in, growing, and coming out for medical costs.
A platform like Lively HSAs charges no monthly account fees, and the balance can be invested for long-term growth. On a high-deductible plan and not yet on Medicare? Open your free HSA today.
The bottom line
Here’s what I love about the Shaq story: the tool that made his dad cry with pride is the same one available to a plumber who hires his kid to run the books. The tax code rewards real work and real businesses — it doesn’t check your net worth first.
Just remember the order of operations. The strategy is legal because the work is real. Keep it real, keep the records, and the savings are yours. Fake it, and the only person who profits is whoever you hire to fight the audit.
Sources: 1. Yahoo Finance; 2. IRS — Family Employees; 3. IRS — Family Members in a Family Business
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