Save Some Money, and Hire your Spouse!

No, I’m not saying that your spouse will work for less pay than someone else.  I’m talking about making some tax advantaged moves in your business that will save you (as a couple) some additional money in taxes each year.

Recognizing that work is usually a family affair, your spouse is probably already a strategic advisor to your business anyway, or pitching in wherever help is needed for vacations, additional seasonal work or employee illness.  This work should be compensated!

Here are some tangible benefits of putting your spouse on the payroll:

• Additional contributions to a retirement plan – Assuming your spouse meets the length of service and age requirements of your plan, the company can deduct the full amount of the contribution, and you can accumulate more money on a tax deferred basis until the contributions are withdrawn.
• More “mileage” from business trips – as I wrote in a previous post, one of the requirements for deducting expenses for companions travelling on business is that they must be an employee of the business.
• Turn health care coverage into a tax deduction – If you are a business that currently covers single policies only, and you are paying more to cover your spouse under the company health insurance plan, hiring your spouse shifts the expense to the company.  The company can deduct the full cost of the health insurance paid for your spouse, just as it can for your other employees.  This works even if you are self-employed!
• Provide deductible group insurance – this can be especially important if your spouse has a health history or other issues that make them an insurance risk, or uninsurable.  Participating in group coverage could not only provide needed coverage, but also shift the expense to a pre-tax basis at the company level, and perhaps lower the premium that would otherwise be paid on an individual policy.  In addition, the first $50,000 of group life insurance is tax-free to an employee.  One Caveat – this won’t work for S Corporations.
• Further your spouse’s education - the cost of courses and seminars taken to improve job skills is a business deduction, and tax free to the employee!
• Other tax benefits – some states provide a tax credit if filing jointly, but require that both spouses have “earned” income in order to qualify.  Generally, earned income means wages earned as an employee or from actively participating in a business other than real estate rentals.
• Shift income to a lower tax bracket – if you are operating as a C Corporation, there could be savings by paying the income as salary to your spouse if the corporate tax rate is higher than your combined personal tax rate.  There are other considerations that play into this scenario, so consult your friendly CPA before jumping on this idea.

All of the tips above assume that your spouse is actually working for the business.  While it’s a good idea to have written job descriptions for each employee in your organization, it’s especially important for your spouse so that the position responsibilities are well documented in case your friendly IRS auditor comes to visit.

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