Good news: Business is booming. However, if you find yourself short-staffed at work, look no further than across the dinner table.
Strategy: Hire your spouse to help out. In fact, make your spouse an official company “employee,” with all that it entails, including filing the proper paperwork with the IRS.
Of course, your spouse will owe income and payroll taxes on wages, like any other new hire, but he or she is also in line for the usual company benefits. Here are five ways to sweeten the pot.
- Build a retirement nest egg. As long as certain requirements are met, an employer can deduct the full amount of contributions made to a qualified retirement plan account set up for the employee-spouse. For instance if your company has a 401 (k), your spouse can elect to defer up to $18,500 of salary income in 2018 ($24,000 if he or she will be age 50 or over as of year-end), in addition to any matching contributions by the company. Contributions grow within the account on a tax-deferred basis.
- Squeeze more tax mileage from travel. Generally, you can’t deduct travel expenses attributable to a spouse when he or she accompanies you on a business excursion. However, if your spouse is a bona fide employee of the company and is going along for a valid business reason, the travel costs – including airfare, lodging and 50% of the cost of meals – are deductible. The benefit is also tax free to your spouse.
- Cure health insurance ills. If you’re currently paying more to cover your spouse under the company’s 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 like other employees. And self-employeds can write off 100% of the cost.
- Advance your spouse’s education. If your spouse wants to sharpen his or her business skills, your company can arrange to send him “back to school” part time. Generally, expenses paid out under an educational assistance plan are deductible by the company and tax free to the employee, up to $5,250 a year.
- Be part of the life insurance group. Similar to health insurance, an owner’s spouse is entitled to the same group-term life insurance coverage as other employees in the company (e.g., equal to three or four times the salary). Key point: The first $50,000 of employer-paid group-term life insurance coverage is tax free to the employee. Also, any additional coverage is taxable at relatively low rates.
These perks are particularly advantages when the business entity is a C corporation. Note that S corporation owners generally can’t deduct fringe benefits like group-term life insurance for any employee owning 2% or more of the company. By extension, this rule also applies to coverage for an employee-spouse.
Tip: Whether you own a C or S C+orp, you can set up a cafeteria plan offering a variety of fringe benefits. Then your spouse and employees only take advantage of those benefits they choose.
Small Business Tax Strategies (January 2018)