5 Quick Tax Perks: Put Spouse on Payroll
Does your business need trustworthy and reliable employees? You may not have to look any farther than across your dinner table.
Strategy: Hire your spouse to work as an official employee. Why put your spouse on the payroll? Because you can gain five tax benefits:
- Build up tax favored funds for retirement
If you meet the tax law requirements, your company can deduct contributions made to a qualified retirement plan on your spouse’s behalf. The annual limits are quite generous. In some cases you can deduct contributions up to 25% of salary up to a maximum contribution of $53,000 per year whichever is less.
- Shift taxable income away from the company
If you operate a C-Corporation any compensation you pay to your spouse would have to stay with the company. Assuming your corporation is in a higher tax bracket than your personal tax bracket, you will save tax overall if yourspouse draws a salary. This is an excellent way to shift income from a higher tax bracket to a lower tax bracket.
- Get more mileage from business trips
Generally, you can’t deduct the travel expenses attributable to your spouse if he or she accompanies you on a trip. However, if your spouse is a employee of your company and goes for a valid business reason you may deduct his or her travel cost. The benefit is also tax free to your spouse.
- Cure health insurance coverage ills
If you are already paying more to cover your spouse under your company health insurance plan, hiring him or her shifts the expense to your company. Typically, your company can deduct your spouse’s full health insurance cost. In addition, if your spouse is the only employee of your business you may consider creating a Section 125 Medical Reimbursement Plan. This type plan will reimburse your employee, in this case your spouse, for certain out of pocket medical costs. In many cases this could result in significant tax saving for the business.
- Join the employer paid life insurance group
Your spouse us entitled to the same group term life insurance as your other employees. The first $540,000 of employer paid group term life insurance is tax-free to the employee.