In independently owned collision repair shops, it’s common for the owner’s spouse to play a role in the business, but if your spouse is working full-time in your business and hasn’t been hired as an employee, you could be missing out on a ton of tax benefits – even the IRS says this is one of the best benefits of owning a business!
When both spouses have an equal say, provide equal services and contribute capital to the business, the IRS views this as a partnership; however, if one spouse controls and manages the business, hiring a spouse could significantly reduce the company’s taxable income.
Hiring your spouse is like hiring anyone else in many ways – s/he must be hired for a legitimate position at an appropriate income, and you’ll need to offer the same benefits and withhold the income and FICA taxes, though the exception is unemployment insurance which you won’t have to pay.
Your employee-spouse can purchase health insurance and extend it to you (the employer-spouse) for a fully deductible expense in some cases. Hiring a spouse provides the opportunity to take greater advantage of HRA, life insurance and social security benefits, and there are also ways to maximize retirement benefits that you should consider.
Tax law varies depending on your business type, with different rules applying to sole proprietorships, LLCs and corporations.
If you found this information useful and are interested in learning how to avoid costly tax mistakes, check out 5 Tax Mistakes That Cost You Thousands, valued at $79, for FREE.