If you own your own business and operate as a proprietorship or partnership (wherein your spouse is not a partner), one of the smartest tax moves you can make is hiring your spouse to work as your employee. But the tax savings may be a mirage if you don’t pay your spouse the right way. And the arrangement is subject to attack by the IRS if your spouse is not a bona fide employee. Here are four things you should know before you hire your spouse that will maximize your savings and minimize the audit risk.
1. Pay benefits, not wages. The way to save on taxes is to pay your spouse using tax-free employee benefits, not taxable wages. Benefits such as health insurance are fully deductible by you as a business expense, but not taxable income for your spouse.
Also, if you pay your spouse only with tax-free fringe benefits, you need not pay payroll taxes, file employment tax returns, or file a W-2 for your spouse.
2. Establish a medical reimbursement arrangement. The most valuable fringe benefit you can provide your spouse-employee is reimbursement for health insurance and uninsured medical expenses. You can accomplish this through a 105-HRA plan if your spouse is your sole employee, or an Individual Coverage Health Reimbursement Arrangement (ICHRA) if you have multiple employees.
3. Provide benefits in addition to health coverage. There are many other tax-free fringe benefits you can provide your spouse in addition to health insurance, including education related to your business, up to $50,000 of term life insurance, and de minimis fringes such as gifts.
4. Treat your spouse as a bona fide employee. For your arrangement to withstand IRS scrutiny, you must be able to prove that your spouse is your bona fide employee. You’ll have no problem if
· you are the sole owner of your business,
· your spouse does real work under your direction and control and keeps a timesheet,
· you regularly pay your spouse’s medical and other reimbursable expenses from your separate business checking account, and
· your spouse’s compensation is reasonable for the work performed.
Ready to maximize your tax savings and financial success? Meet Coach Janelle, your trusted CPA specializing in Tax Strategy Planning!
Don't leave your money on the table. Let Coach Janelle show you how to:
✅ Optimize deductions & credits for maximum savings
✅ Navigate complex tax laws with ease
✅ Strategically plan for a brighter financial future
✅ Minimize tax liabilities and keep more of what you earn
Join countless satisfied clients who have unlocked the power of strategic tax planning with Coach Janelle. Take charge of your financial destiny and book your consultation now! Take the first step towards financial success now!
All Your Information is Protected When You Sign Up
Check Out Some Of Our Latest Blog Post
Shutting Down a C Corporation
Written by Coach Janelle CPA on July 13, 2023
There are several tax implications that you need to be aware of when shutting down a C corporation. Complete liquidation of a C corporation is when it ceases to be a going concern, winds up its affairs, pays its debts, and distributes its remaining assets to the shareholder(s). In tax terms, the corporation...
If you have an office in your home that qualifies for the home-office deduction and you employ a cleaning lady who maintains both your home and your home office, there are a couple of tax considerations to keep in mind.
Claim Your 2020 COVID Sick and Family Leave Credits Today
Written by Coach Janelle CPA on June 28, 2023
You may have overlooked potential COVID-19 sick and family leave tax credits on your 2020 tax return. You might be eligible for up to $15,110 in tax credits, and the good news is that it’s not too late to claim them.
Act Now to Qualify for Your 2020 and 2021 ERC Money
Written by Coach Janelle CPA on June 21, 2023
It’s 2023, but you still have the chance to qualify for the employee retention credit (ERC) for the 2020 and 2021 calendar years. This credit can potentially help you recover a significant amount of money.
You need an estate plan, regardless of whether or not you are among the ultra-rich. As recent news has shown, even those who have won the lottery or have substantial wealth can fall victim to poor estate planning.
Take Advantage of the Once-in-a-Lifetime IRA-to-HSA Rollover
Written by Coach Janelle CPA on May 15, 2023
Health Savings Accounts (HSAs) are designed for use alongside high-deductible health plans, assisting you in covering your medical expenses. They can also function as an incredible retirement account due to their triple tax benefit:
You can deduct contributions from your taxes. Your account balance...
If I Hire My Kids, Can I Give Them Tax-Free Education Benefits?
Written by Coach Janelle CPA on April 28, 2023
If your children work in your business, consider giving them education fringe benefits. Doing this right creates tax deductions for the business, and tax-free fringe education benefits for the child. You can accomplish this without a Section 127 plan when your child needs the education to do the job for your business or to com....