This is an update on a posting of mine a year ago, but is still a good planning opportunity if you have a sole proprietorship and kids under 18:

If you are a sole proprietor and have kids under 18, you can hire the kids and save on both income tax and self employment tax! You can pay them up to $6,200 in 2014 and save.  Your child’s income is tax free to them and because of the exclusion for social security, medicare, state disability (in California) and unemployment taxes, you can effectively get a tax deduction in your sole proprietorship (for income tax and self employment taxes) without having to pay any taxes anywhere else.  It can be a great tax planning strategy, but remember it will only work in a sole proprietorship (corporations and LLCs need not apply).

Now remember that the kids actually have to do work for you to qualify, the salary has to be reasonable and the money actually belongs to the kids. Since you give them allowance and other things anyway you can probably make this work.