Date: September 28, 2022
3 Benefits of Hiring Your Spouse to Work in Your Business
The effects of the ‘Great Resignation’ are still being felt by business owners everywhere. Many struggle to find and keep the right talent needed for their business. There are also many businesses that are struggling to keep up with exponential growth and not enough infrastructure to support it. A creative solution (with multiple benefits) can be to hire your spouse to work in your organization. There are several tax savings opportunities when you hire your spouse. They are:
1. Maximize Retirement Benefits – You can pay your spouse in the form of ‘Fringe Benefits’ to reduce taxable income for the business – but you will need to speak with a tax expert to ensure you qualify to use this strategy (you will have to have the right business structure, etc.) It is important to note in this instance that your spouse can not be an employee if they are a partner. To reap the tax benefits, you will want to pay your spouse in mostly, if not all, fringe benefits, because wages are taxable, fringe benefits are not. Furthermore, due to recent legislation changes, employees can now contribute up to $20,500 (per year) to their 401K. Also, as an added bonus, the IRS allows people over 50 an additional $6,500 in contributions per year! This is a great way to bring some labor support to your organization (with someone you enjoy spending time with), that will provide both business and personal tax benefits.
2. Health Insurance Benefits –Take advantage of the 105 Health Reimbursement Arrangement (HRA). Sole Proprietors & Partnerships who have their spouse as an employee can utilize this great tool – it’s a tax-free benefit if done correctly! Always check with a tax expert to see if you have the right business structure needed to qualify. Here is a quick overview of how it works- your spouse purchases health insurance that covers the whole family, including you. Then, you as the employer, reimburse your spouse for the premiums AND for deductibles, copays, prescriptions, for the WHOLE family. This can save you thousands! Another insurance benefit is group disability insurance – if you offer it and hire your spouse, they will qualify for it (just like any other employee). Also, as the employer, you may provide up to $50,000 in group term life insurance coverage – TAX FREE!
3. Education & Other Benefits – You are able to deduct job related education (as it isn’t considered income by your spouse). There is the ‘working condition’ fringe benefits – things that your spouse uses to do their job – for example, their smart phone. There are other smaller deductions you can take, like occasional snacks and meals, gifts for special events like birthdays (think flowers or theater tickets, etc).
Hiring your spouse and paying them in the form of fringe benefits can create numerous tax benefits. It is important to employ an expert on your side to help you decipher the complicated tax codes and make sure you are taking advantage of all the legal tax savings available to you. If you don’t have someone in your corner, we are happy to help. We love helping our clients reduce or eliminate their tax bill, so that they can invest in their retirement and communities. Click here for a complimentary assessment and start saving!