If you’re a business owner with an industrious family, you may have at times had your children or spouse “help out” while the business gets on its feet. But you may not have considered that there are real tax advantages to hiring family members—particularly your spouse. Even though he or she must be properly added to payroll and all necessary paperwork filed, they may also enjoy receiving standard company benefits, which ultimately helps you both.
Business Trips – For one thing, your business may have more tax deduction options available as a result of your spouse being an official company employee. One simple example relates to business-related travel: If your company-employed spouse travels with you for valid business reasons, the cost of the trip, including lodging and airfare (and 50% of the meals) is deductible for your business and tax-free for your spouse.
Education – If your company benefits include education reimbursements or incentives to improve employee skills, your hired spouse now is able to utilize these, and again, the expenses paid out are generally deductible to the company and tax-free to your spouse.
Retirement – Business tax deductions may also apply to profit-sharing and retirement plans, such as a 401(k). As with any other employee, company contributions (within current tax-law limits) made to your spouse’s plan are deductible in full. Consult with your company’s tax professional to make sure you are eligible—there are a minimum number of requirements in order to legitimately make use of this strategy.
Health Insurance - Insurance benefits also increase when your spouse is employed by your company. Consider the additional amount taken from your own paycheck in order to cover your spouse under your own company-provided health insurance plan. If your spouse is an employee, not only will you be able to restructure your personal plan to potentially save money, the plan provided to cover your spouse alone becomes a new tax deduction for your business.
Life Insurance – A similar structure applies in regards to company-provided group-term life insurance—your spouse becomes eligible for the same benefits as all other employees, rather than simply appearing as a separate covered beneficiary on your own. Under current tax laws, the first $50,000 of life insurance coverage will be tax-free to your spouse, and coverage that exceeds that amount is taxed at generously lower rates.
Note: These perks differ depending on whether your company is a C Corporation, S Corporation or Limited Liability Company.