| Kids on Payroll!
The only way to pay your kids a compensation is through a payroll deduction, that is through W-2 wages.
The advantage here is the federal and state withholding would be considerably less than that for you, and this is where the tax savings strategy comes into effect. However, the issue becomes what is a reasonable salary, and you need to discuss with your CPA at what point in terms of wages paid, does the kids tax rate become that of your tax rate.
Nevertheless, a smart strategy especially for a nominal salary would not be subject to SE taxes as well. There is a special exemption for this tax. Please consult your CPA regarding this as well.
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