If you’re running your own business, one of the best tax-saving strategies is to bring your spouse on board as an employee. But to truly benefit, you’ll want to make sure you’re handling it correctly, or you could risk losing out on savings or attracting IRS scrutiny. Here’s what you need to know:
- Opt for Benefits, Not Wages: Instead of paying your spouse a traditional wage, which is taxable, consider paying with tax-free employee benefits. These can include things like health insurance—fully deductible for your business but not taxable for your spouse. Plus, with tax-free benefits, you avoid the hassle of payroll taxes, employment tax returns, and filing a W-2.
- Set Up a Medical Reimbursement Arrangement: One of the top benefits you can offer is reimbursement for health and medical expenses. If your spouse is your only employee, use a 105-HRA plan. For businesses with multiple employees, look into an Individual Coverage Health Reimbursement Account (ICHRA).
- Add in Extra Perks: In addition to health benefits, consider offering other tax-free fringe benefits like job-related education, life insurance (up to $50,000), or small gifts—these are often deductible for your business but don’t add to your spouse’s taxable income.
- Make Sure Your Spouse Is a Legit Employee: To keep things IRS-compliant, your spouse should have a clear role with real tasks and follow the same work standards as any other employee. Be sure they keep timesheets, their pay matches the work done, and expenses are reimbursed from your business account.
Curious about other strategies that can save you money? There are more ways to leverage your business for family tax savings—let’s chat!
