The advantages of having your spouse work for your
business are numerous and can often offset the additional FICA taxes the company will have
to pay on his or her salary. A few examples of the potential savings are as follows:
Business Travel - If you take
numerous business trips with your spouse, you may be able to deduct the full cost of the
trip provided you can establish a business reason for your spouse's presence. If
your spouse is not an employee, establishing that business reason would be virtually
impossible. Pension Plan - If your salary is
currently in excess of the maximums allowed under your company's qualified retirement plan
(see our Federal Tax Database
for current limitations), you may be able to shift some of your salary to your spouse
in order to increase your combined retirement contributions.
Double Taxation - If your business
operates as a C corporation and you have concerns that the IRS may consider your
compensation unreasonable, hiring your spouse or other dependents can give you a means of
taking profits out of the business without having to pay taxable dividends on earnings
already taxed at the corporate level.
As we stated above, the IRS can indeed challenge
the employment of your spouse if they consider it a sham just to avoid taxes. We can
certainly assist you if you feel that employing your spouse is an option you would like to
consider.
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