If you own your own business you already know the joys of being your own boss. You may even have thought about bringing your spouse and/or children into the fold. There are definitely some benefits to hiring your spouse or children. Here are some to consider.
Tax Advantages of Hiring Children Under 18
There are several tax benefits when business owners hire children under 18, as long as the child is still a dependent. If the child is 18 or older and not a dependent, they’re treated no differently than if you hired a job candidate off the street, tax-wise.
First, the child can earn up to the standard deduction amount without having to pay taxes on their earnings. If you have a retirement plan in place, up to a certain amount of additional dollars can be contributed tax free. Your CPA can help you determine exactly what that amount is, based on the type of retirement plan your business has. They can also help ensure that you take advantage of all the tax benefits of employing your dependent child.
Additional Benefits of Hiring Your Children
Employing your child is a great way to prepare them to enter the workforce as an adult. Under your tutelage, they can grow accustomed to showing up for work on time, practice good work ethics and learn how to be self-motivated.
Working next to your child also allows you to spend more quality time with them. They’ll get to see firsthand what you do all day long, and how hard you work for the family. Over time, your relationship will grow deeper and stronger because of the time spent together at work.
Finally, your child will benefit from the feelings of independence and self-empowerment of earning their own paycheck. They will learn the relationship between work and monetary reward. They can then take that money and put it toward their future or learn more about saving and investing. Subsequently, they’ll learn lessons about the value of a dollar as they make choices about how to spend their money. These are lessons that can’t be taught from a lecture or a textbook.
The Work Has to be Real
If you decide to officially hire your spouse or children, do so honestly. The work that your spouse or children do must be legitimate work, and not something that just appears on paper to try and justify a tax write-off. The work doesn’t have to be highly technical or labor-intensive, but it should serve a bona fide need for your business.
Appropriate Jobs For Younger Children
Younger children can do simpler tasks around your home office that are actually very helpful. Here are some easier jobs that you could give your younger children that would likely pass the “litmus test” as far as the IRS is concerned:
- cleaning your home office on a daily or weekly basis
- making photocopies
- filing papers
- stuffing envelopes/applying postage
- opening the mail
- keeping track of office supplies inventory
- answering the office telephone
Tax Advantages of Hiring Your Spouse
The tax advantages of hiring your spouse are different than those you gain from hiring your children, but it still might be worth considering. First of all, your spouse will be able to contribute toward your employer-sponsored retirement plan. This may even double the allowable annual contributions, which is very valuable. Second, if you hire your spouse they can avail of a health saving plan, whereas you couldn’t as a sole proprietor. This enables your spouse to spend pre-tax earnings on medical necessities as trivial as aspirin. And since you’re married, you then get the same benefit.
Additional Benefits of Hiring Your Spouse
There are lots of other benefits to hiring your spouse that also make this a worthwhile consideration. These include:
Trustworthy Business Partner
When you hire your spouse you can freely share every aspect of your business. You don’t have to worry about learning to trust some manager that you hired off of a job board. There’s a lot to be said for working with someone with whom you can openly and honestly communicate about the business no matter what.
Save on Daycare
If your spouse is also the parent of young children, you could save on daycare costs if your spouse works in your home office. Many couples find daycare costs so exorbitant that one spouse quits to stay home. If the stay at home spouse is also earning, that’s a huge bonus for your household budget.
Your spouse will experience much less stress by not having to endure a long commute each morning while you stay home to work. With both of you working together, you can either share the commute or simply enjoy a leisurely morning as you prepare to go to work in the home office. Your quality of life will improve remarkably with this change in working dynamics.
Tips For Hiring Your Spouse
Once you decide to hire your spouse, here are some tips to make the transition go more smoothly:
Take Advantage of Existing Skills
Did your spouse used to be a bookkeeper or secretary or something else that you could use in your business? Instead of asking your spouse to do something completely foreign, take advantage of existing skills to reduce the learning curve.
Treat the Relationship Separately
Don’t let the marriage relationship affect the business relationship. Talk about business at work and personal things after hours. That way, you can maintain that line between your professional and personal relationship.
Provide Adequate Training
Just as you would if you were hiring someone off the street, be sure to provide adequate training for your spouse. Spend time explaining your business processes so they can feel more comfortable working alongside you and adjust as soon as possible.
Working with your spouse or children can be a rewarding experience that is even better when you consider the tax benefits. Before doing the actual hiring, consult with your CPA to ensure you go about it in the right way.
Have a question? Contact Kazim Qasim.
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