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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121478  
Subject: Re: Hiring a spouse Date: 12/14/1997 3:02 PM
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<<I have a private business besides a full time job. I am unsure of the procedure and
advantages/disadvantages of hiring my wife in the business (for billing; co-conulsting, etc.).
Can someone point me to a previously posted message about this or answer it for me>>

Vic...

Placing a spouse on the payroll is something that we have discussed in the past, but I can't find the post right now, so I'll hit the highlights for you, and we can discuss any specific issues in greater detail.

Much of the answer depends upon if the spouse is the ONLY employee on the payroll. If you have other employees, some of the benefits that you pass through to your spouse may have to also be passed to the other employees...which may minimize the impact. But lets take a look.

Some of the advantages...

1. Spouse will qualify for pension/profit sharing contributions

2. Spouse will be able to travel for business purposes, assuming a vaild reason, and will be allowed the travel deduction. Things such as conventions, business seminars, etc. may allow you to travel together, and take a deduction for both of you. Recent changes to the law prohibit spousal travel for business purposes unless the spouse is on the payroll.

3. Spouse may qualify for a medical reimbursement plan, thereby allowing you to deduct your family medical insurance payments. Check out the Taxes Frequently Asked Questions area for additional information on this issue. You can get to the Taxes FAQ area via the Home Page, and moving to the Fools School area...just follow the roadmaps from there. If your spouse is the only employee, this could be a very valuable option.

4. If your spouse has no other earned income, this earned income may help you to qualify for the child care credit, the earned income credit, the IRA deduction, an other benefits.

In general, the biggest drawback to hiring your spouse are the payroll issues. You will have to deal with the quarterly payroll tax filings. You may also have to cover your spouse under worker's comp (not likely, but possible depending upon where you live). Your spouse's wages will also be subject to FICA taxes (but not FUTA taxes).

This means that you have to file for an employer federal (and, most likely state) tax ID number, and jump through all of the payroll hoops that any other employer would have to jump through. If you spouse is the only employee, you'll really have to see if these hassles are worth the benefits. In many cases, they are. But only you can really make that call.

TMF Taxes
Roy
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