2 REASONS TO ADD YOUR SPOUSE TO PAYROLL
What's better than having a profitable Coaching business??
Keeping that profit!!
If you run your coaching business as a one member LLC, you may want to consider adding your spouse as an employee.
There are rules involved with pay structure and role so you will need to make sure the pay is reasonable for their job duties.
YES...they actually need to do the work.
This is a legal tax strategy...not fraud.
2 BENEFITS TO THIS STRATEGY:
Potential tax savings via increasing your contribution to your 401K plan
Building up Social Security credits for each spouse. (fees & taxes apply so the benefit is delayed gratification)
#1. INCREASING YOUR 401K CONTRIBUTIONS
If you have a 401K plan in 2022...you are limited to a total contribution amount of $61,000.
That $61,000 consists of:
Employee salary deferral
Employer match
Employee After-Tax Contribution / Profit Share
As the owner, you might have maxed out your $61,000.
But...if you add your spouse...they also get $61,000!
...now you doubled your family's contribution opportunity to $122,000!
And depending on how that is structured...that could be a significant reduction in tax liability for that tax year (likely using a tax deferral until retirement strategy).
#2. INFO ON SOCIAL SECURITY CREDITS
For Social Security eligibility, most of us need a minimum of 40 credits or 10 years (40 quarters) of earned income by retirement.
So if your spouse is earning no income while they help you with the business "for free"...
...they are NOT earning credits into the social security system.
Important Note - this is NOT a "free lunch"...you will incur FICA (social security & medicare) taxes on the income your spouse earns.
However, depending on the business profits, the tax savings could outweigh the payroll related fees & taxes.
If this strategy interests you, please reach out to my office for a consult!
We can help you run this tax analysis!
Let us help review the potential cost savings... BOOK FREE CONSULT HERE!!.
Best
Pat
Disclaimer: This is meant to be educational and not advice for your specific situation. Please consult a qualified tax or financial professional with tax expertise before making any changes to your employment and payroll structure.