Ep. 113 | Should You Pay Your Spouse? Tax Benefits and Pitfalls

Teaching Tax Flow: The Podcast

In this episode of the Teaching Tax Flow podcast, hosts Chris Picciurro and John Tripolsky delve into the intriguing topic of whether business owners should consider paying their spouses a salary. The episode explores the potential tax benefits and drawbacks associated with this strategy, aiming to provide clarity for entrepreneurs looking to optimize their tax situation. Sponsored by Reps Tracker, a real estate investment tax strategy tool, the podcast underscores the complexities and nuances of tax planning for small businesses.

Chris highlights three primary reasons why a business owner might decide to put their spouse on payroll: maximizing contributions to retirement plans, creating deductible benefits, and reducing self-employment tax. The discussion dives deep into these strategies, providing tangible examples and clarifying stipulations, such as ensuring the spouse performs legitimate work. The episode also covers instances where it might not be advantageous to pay a spouse, emphasizing administrative burdens and potential tax pitfalls.

Key Takeaways:

• Maximize Retirement Contributions: Paying a spouse can potentially double retirement savings through plans like solo 401(k)s, significantly enhancing tax-deferred savings options.
• Create Tax-Deductible Benefits: Employing a spouse can enable tax-deductible medical expenses and other fringe benefits through strategic plan implementation.
• Reduce Self-Employment Tax: Spousal compensation can help allocate income more favorably, potentially reducing overall self-employment tax liability.
• Administrative Burdens: Consider the cost of payroll processing and ensure the financial benefit outweighs administrative efforts and expenses.
• Legitimacy and Compliance: Emphasize ensuring legitimate employment to avoid audit risks and increased household taxes.

Notable Quotes:

• "Think about compensation planning as a really great tax planning tool." – Chris Picciurro
• "Your marginal tax rate is your number one key performance indicator when it comes to tax planning and strategy." – Chris Picciurro
• "Buying a vehicle, in my opinion, is not a tax strategy. It's a business decision that has an immediate tax benefit." – Chris Picciurro
• "If you are in a situation where you feel that you don't have any other employees and your spouse is helping in the business and you feel like you're paying a lot of expenses, that could be a benefit." – Chris Picciurro
• "The administrative burden might outweigh the benefit." – Chris Picciurro

Episode Sponsor:
REPStracker

www.repstracker.com/affiliate/teachingtaxflow (CODE: IFG)

Resources:

• Defeating Taxes Facebook Group: Access through defeatingtaxes.com

• (00:03) - Should You Pay Your Spouse in Your Business
• (02:31) - When It Makes Sense to Pay Your Spouse in Business
• (05:44) - Maximizing Retirement Contributions Through Spousal Employment
• (07:22) - Tax Strategies and Income Shifting Within Families
• (10:12) - Tax Benefits of Hiring a Spouse in Small Businesses
• (12:54) - Tax Strategies for Spouses in Business Partnerships
• (17:28) - Holistic Approaches to Multi-Member LLC Tax Strategies
• (18:21) - Pros and Cons of Hiring Your Spouse for Tax Benefits
• (23:30) - Engage With Tax Insights and Community-Driven Podcast Content