How Hiring Your Spouse Can Help You Save Taxes

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Wedding-515983_1920If you’re a business owner, you know how much you rely on your family’s support.  Your spouse is probably already helping you in your business.  Actually, officially putting them on the company’s payroll has many advantages.

  1. You can deduct the full amount of contributions to a qualified retirement plan made for your spouse.  Of course, you still need to follow the laws and guidelines, but this is a great way to lower your taxes and save for retirement at the same time.
  2. If a business owner is operating a C corporation, payments to the spouse can reduce taxes if the company is in a higher tax bracket than the owner’s tax bracket.  This also allows you to take more funds out of the corporation before the company is hit with the excess earnings tax or has to pay dividends, which results in the much-feared double taxation of income.
  3. If your spouse is considering going back to school for a business degree or something else that can benefit your business, the business can pay for it and deduct the tuition.  You cannot take any education credits for yourself, but you will not be taxed on the money you spend on tuition.  This can be tricky, so please check with your tax preparer.
  4. Health insurance is another area where hiring your spouse can cut costs.  As we all know, health coverage is expensive, and if you hire your spouse, you can get the same coverage and price that your other employees receive.  The difference is that it is 100% deductible.
  5. If you and your spouse travel a lot for business, you can deduct the mileage and expenses for both of you.  If your spouse is an actual employee and will be performing work-related duties during the trip, expenses can be deducted as normal business expenses.
  6. Again, if you offer your employees life insurance at group rates, you can include your spouse in that plan.

These are just some benefits that you can receive if you are considering employing your spouse.  You may want to consult a tax advisor and your insurance representative to make sure the savings are worth the payroll tax expenses.

Be sure to check with your tax advisor before paying your spouse to make sure this works for your particular situation.