Strategic Insights for Employing Your Spouse

If you own your own business and operate as a proprietorship or partnership, one of the smartest tax moves you can make is hiring your spouse to work as your employee.

Unfortunately the tax savings may be a mirage if you don’t pay your spouse the right away.  Also, the arrangement is subject to attack by the IRS if your spouse is not a bona fide employee.

Here are four things to know before hiring your spouse to maximize your savings as well as minimize the audit risk.

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.

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.

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.

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.

How we can help

Sterling Tax and Accounting is here to help your business with tax planning!  Our comprehensive approach to tax planning helps reduce your overall tax liability and keep more money in your pocket.  If all your accountant does is file your taxes, chances are they are making you pay more than your fair share of taxes.

Learn how to proactively save on taxes by scheduling a call with our tax planning specialists.

Our tax planning, accounting & business services help you stay on track. Sterling Tax & Accounting will work with you to optimize your business and minimize your taxes. We will work to provide you and your business with the tools and resources you need to build a solid tax and business foundation. We’re a trusted CPA Firm in Sarasota, Florida. We serve clients all over the US, and proactively work to minimize their taxes.

Welcome to the Sterling Standard of business!  Want to learn more?  Schedule a meeting with our tax planning team here:  https://www.sterling.cpa/contact-us/