Business Trips
If you take business trips, you are not allowed to deduct your spouse's
expenses, no matter how vital or important he or she is to the success
of the trip, unless your spouse is a bona fide employee of your
business.
Avoid Double Tax
If you do business through a C (regular) corporation, paying a salary to
a spouse allows you to take earnings out of the corporation without
paying a double tax. For example, if money is taken out of a C
corporation via a dividend, a tax is paid on the original earnings by
the C corporation and a second tax is paid by the shareholder when the
dividend is received. Whereas, money taken out of a C corporation as
salary is taxed only once - to the wage earner.
Social Security
If your spouse isn't currently working or is not earning the social
security maximum, collecting a salary from your business will increase
his or her future social security benefits.
Increased Pensions
Generally, only the first $170,000 (indexed for inflation) of salary can
be taken into account when computing allowable contributions to most
qualified retirement plans. If your salary is more than that, putting
your spouse on the payroll and shifting some of your salary, in excess
of $170,000, to your spouse will increase your combined retirement
contributions.
Childcare Deduction
Putting your spouse on the payroll will make you eligible to claim a
credit for expenses incurred for child care. The size of the credit
depends on two things: how much you pay for childcare and your Adjusted
Gross Income. The maximum allowable credit for two or more children is
$960.
CAUTION
If you put your spouse on the payroll, you have to pay payroll taxes on
the additional salary. Payment of the payroll taxes will offset some of
the benefits gained by putting your spouse on the payroll. Furthermore,
your spouse must perform legitimate work for the business.
