Episode 45. How to Hire Your Spouse Tax Strategy

Today I reveal the hiring your spouse tax strategy that means my client is estimated to save $338,000 in taxes. Most business owners are doing this completely wrong - either overpaying their spouse and crushing themselves with payroll taxes, or missing out on massive tax deductions by not structuring it correctly. In this podcast, I'll show you exactly how to hire your spouse on payroll, what to pay them, what NOT to pay them, and the critical tax mistakes that could trigger an IRS audit.

Here's what most business owners get wrong about hiring their spouse. They think throwing their spouse on payroll automatically saves taxes, but without proper tax planning, you're just creating unnecessary payroll taxes. Your spouse needs to actually work in the business and get paid a reasonable wage for their actual job - not some inflated salary that raises red flags. I see business owners overpaying their non-working spouse thinking they're being smart, when they're actually overpaying tens of thousands in Social Security and Medicare taxes for zero benefit.

We’ll debunk the biggest tax myths about such a  tax strategy. Hiring your spouse just to maximize Social Security benefits? Usually a terrible idea that costs more taxes than it saves. The real power comes from understanding when hiring your spouse makes sense and when it doesn't. Sometimes the best tax strategy is NOT hiring them at all, which is exactly what we determined for that client who's estimated to save $338,000 on taxes. 

If your spouse naturally works in your business or you're considering bringing them on, this video shows you the right way to structure it for maximum tax savings while staying completely compliant with IRS regulations. Work with a qualified tax advisor before implementing any spouse employment strategy to make sure it fits your specific tax situation.

I've put together this FREE resource for you:

7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/?el=podcast&htrafficsource=buzzsprout

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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this ...

Chapters

• 0:00 Why Hiring Your Spouse Can Backfire
• 1:34 Podcast Intro & Tax Planning Mindset
• 3:20 Robert’s Case: Don’t Hire the Spouse
• 4:48 Payroll Taxes vs. Real Savings
• 7:27 The 401(k) Myth for Spouses
• 9:36 Advisor vs. Preparer: Get Real Planning
• 10:24 Free PDF & Resources Mentioned
• 10:55 Restructuring Robert: Fire Spouse, Shift to Real Estate
• 12:08 Qualifying as a Real Estate Professional
• 13:10 Cost Segregation and Big Depreciation

Transcript

SPEAKER_01: 0:00

Hey and welcome back to my channel. Today I want to talk to you about hiring your spouse tax strategy. So a lot of business owners have a business, they become very successful, and then they hire their spouse to work with them. Naturally, the spouse comes and helps in the business. But what happens is that very often they start paying their spouse a salary, which is okay, but very often it's done incorrectly with some planning that is not real. Okay, so I want to show you and tell you and really teach you how to properly hire your spouse on payroll, what to pay your spouse, what not to pay your spouse, and when not to pay your spouse. So we're gonna cover everything, including the fact that a lot of business owners say, you know what, I hire my spouse because I want to because I want to maximize her social security, or I want to maximize her retirement. So we're gonna talk about all of that here.

SPEAKER_00: 0:56

Welcome to the tax reduction podcast for money-making entrepreneurs with Boris Musheev. Boris has helped entrepreneurs across the United States collectively save millions of dollars in taxes with the power of tax planning and advisory. The only way you, the business owner, can save money on taxes is by using proactive tax strategies. And this podcast is all about saving you money on taxes. Boris will share with you in-depth and easy to understand tax reduction strategies that you can implement in your business within 30 days or less. Let's jump into today's episode.

SPEAKER_01: 1:30

Okay, cool. Uh, let's kind of uh get this going. Let's talk about hiring spouse. Okay, so um, this is actually a perfect example because I spoke to a client, he's not gonna disclose his real name, but we're gonna call him Robert. Okay, so it's very close to his real name. So his name is Robert, and uh, we just got off the projections call, and he's going to be saving on his taxes$338,000, okay? And the whole strategy involved, believe it or not, whether you need to hire your spouse or not hire your spouse. And in his case, we came up with a strategy not to hire the spouse and save him that much money on taxes. So we will dive deep into a situation as well. I actually printed some uh materials that this is his exact situation, his case study. We're gonna talk about that, but I want to get into hiring spouse. Okay, let's get uh into the basics. Now, first of all, you have to understand a lot of people think I'm gonna hire my spouse, so I take it as an expense in a business. No, it's just taking money from one pocket, right, and putting it into another pocket. That doesn't work that way. It's your money, you file taxes together because you have a flow-through entity. Most likely, if you're a small business owner, you probably have an S corporation. If you don't have an S corporation, speak to your tax advisor and get yourself an S corporation. Okay, so we're gonna assume that you have an S corporation, so it's a flow-through entity. Hiring your spouse subjects you to paying payroll taxes, okay? So remember you pay payroll taxes as an employer. Every time you pay somebody a hundred dollars, whether it's an employee, whether it's you yourself, or you're paying your spouse, you're paying$7.65 in payroll taxes. So for every thousand dollars, you pay$76, okay? And for every$10,000 or for every$100,000, and it goes on. Your employee pays exact same amount on their side. So when you hire your spouse to work in your new business, you basically end up paying 15.3% taxes on the payroll taxes. Okay, so if you paid your spouse$100,000, that's$15,300 off wasted money. Now, what I say, why do I say wasted? In most cases, at least with my clients, tax advisory clients that we have in our tax advisory firm, their spouse does not work for them in a business. Okay, they the spouse does not work in a business, they still pay them a salary because they think they want to maximize retirement, which I'm gonna get to in a second. Okay, and they actually end up overpaying in payroll taxes. Now, if your spouse does in fact work for you in a business, then you don't need to pay them this crazy phantom salary. I had a client be like, Well, Boris, like his wife actually got mad at me. She's like, Well, what do you mean he can't pay me from the business? I'm like, Well, do you share your finances? She's like, Yeah. I'm like, does he do you guys like share the same bank account? She's like, Yeah. I'm like, so what's the problem? He'll take distributions and he'll pay you. She's like, Oh, he can do that. I'm like, yeah, and it's gonna save you payroll taxes. Okay, so if your spouse really does work for you in the business, then you pay them a normal wage, right? Whatever you would have paid your anybody else that would have done their job. It's$20 an hour,$25 an hour, but not$60 an hour. Okay, in most cases, we either took this uh uh spouse off the payroll, okay, or we significantly reduce their salary, the spouse, because first of all, the spouse in most cases is not an owner of that business, and they can get paid regular wages, they don't have need to have that reasonable uh compensation calculation as the owner does uh under the S Corporation rules. As long as you pay them for their hours, that's it. You don't need to pay them fandom salary. So hiring your spouse, that's strategy number one. Either take them off payroll, which I will talk about why later on, or completely reduce down. That's gonna help you save on payroll taxes. Okay, Robert, the client that we're gonna talk about here, actually had his spouse on payroll. Now, before we get to the Robert and talk about how he saved$338,000, let's talk about another myth that business owners say, Well, my spouse is on payroll because um I want to maximize their retirement. I want to get a retirement deduction. So let's just take a simple scenario. If you're a W-2, uh, excuse me, you're a business owner and you have W-2 employees, okay? Now your spouse is on payroll and you do 401k. You as an employer or an employee, excuse me, you as an employee of your own business can put away$23,500 as an employee deferral into your 401k. Okay, that's if you're under the age of 50. Your spouse can do the exact same thing. Put away$23,500. This is before the 3% company match, okay? So business owners tell me, well, Boris, I won't be able to do$23,500 for my spouse. Think about it. How much are you saving by doing$23,500? If you are in a 30% bracket, then you're gonna save about$6,000. But you're gonna end up paying 15% payroll taxes on your spouse's salary. So if you take 30% minus the 15%, you're really left about 15% of tax savings. When your spouse retires, your spouse is gonna pay taxes on that retirement income. And most likely, if you are a profitable business owner that is super successful, have some cash accumulated investing, and if you're not doing any of that stuff, get yourself a tax advisor, start saving money on taxes if your business is growing, okay, then your spouse most likely is gonna be in a higher tax bracket. So really you're not saving much money, okay? And instead, your spouse is gonna overpay. Now, I'm not saying this is the same scenario if your spouse works for the business. If your spouse works for the business, like I said earlier, reduce down their salary, still do the retirement. But if your spouse does not work for the business and you they are on payroll because you want to maximize their retirement, the math doesn't make sense. I've done this with a lot of our tax advisory clients. Okay, they come in and they say, boys, I want to save money on taxes. This is this is what I do. Like I undo a lot of things that they do, that their preparer possibly didn't tell them, and they do all these searches online. I actually have a lot more clients emailing me, be like, Well, I looked something up on Chat GPT. Well, you should know you gotta always fact-check, fact-check Chat GPT, although I love using Chat GPT for other reasons, not tax research, okay? So, with that being said, if you ever want to stop using Chat GPT, just get yourself a tax advisor. That's all I can tell you. The only reason you're probably overpaying in taxes and not getting proper advice on how to treat payroll for your spouse is because you do not have a tax advisor.

SPEAKER_00: 8:08

If you have a tax preparer and you do not have a tax advisor, the only way you can save money on taxes is by using proactive tax planning strategies that only a tax advisor can give you. Boris put together a free PDF for you, the business owner. Seven tax write-offs every S Corporation business owner must know. In this PDF, you can find seven tax strategies that you can start using in your business to instantly start saving money on taxes. Click on the link in the description below for a free download.

SPEAKER_01: 8:39

Now, those are the two things about the hiring a spouse. Let's talk about Robert and how Robert, my client, is going to be saving$338,000 on payroll. Uh, excuse me, on taxes, not on payroll, but on taxes. Okay. So Robert came to me. He's a uh new tax advisory client. He started working with us this year. I did his tax plan and I asked him about what his spouse does for the business. He's like, well, she he said she works for the business. She doesn't put in a lot of hours, she does mainly light administrative tasks, she helps him stay organized with the finances and so forth. I'm like, okay, cool. Uh we found out he's overpaying her. I think he was paying her close to a$85,000 a year. So, right off the bat, after the calculation, like that salary could have been reduced to like$40,000 or even less because she's putting in way less hours and she's doing clerical work, so to speak. Okay, so I'm like, you're gonna save money on right there. But I said, how about we just completely take her off payroll and fire her? He's like, wait, what? We're gonna fire my wife for my business? I said, Yes. The reason I said that, because Robert owned three big properties, all commercial real estate. Okay, and I said, Look, Robert, if your real estate commercial real estate properties, by the way, are already redu uh producing a loss, and you've bought a new one that's gonna produce a loss, these losses are not tax deductible to you because you are a business owner and you're actively participating in your business and not in real estate. What if we take your wife off the payroll, take her out of the business, and instead she's gonna help you manage real estate? And I said, by the way, how much of real estate does she already manage? He said, Well, she actually manages all of it. And the new building that we just bought, she's just gonna be super busy with that because it's like a lot of tenants, it's a commercial building. I said, Well, we can qualify her for what's called the real estate professional. We'll take her off the payroll. He's like, Well, boys, what about my health insurance? I have health insurance through her. I'm like, well, just switch it to your name. He's like, Well, yeah, it's only gonna cost me a few hundred dollars, right? So we did the whole thing. We took her off the payroll, we qualified her as a real estate professional. To meet the definitions of the IRS, a lot of people think in order to become a real estate professional, you need a real estate license. Nope. You just have to meet the simple definition of the IRS rules, what it means to be a real estate professional. Number one, more than 50% of your time has to be spent in real estate, which she will Robert's wife will now start doing, okay? And she has to spend at least 750 hours in real estate, which she easily meets. Now I told Robert, now you've got this new prop a new property and two other properties. We're gonna do what's called cost segregation on it. Cost segregation is this basically appreciated depreciation on your property. He got kicker, he got about a million dollars in additional depreciation deduction. His net profit, by the way, we did his projections, right? So I do this with all of my tax advisory clients. We do projections. I just got off the projections call with him. He said, income is 1.7 million. How can we reduce down my income? We talked about it. We took the spouse off payroll, we made a real estate professional because she barely works in a business, she works more in real estate, so we made a real estate professional, and we are doing cost segregation study, which is gonna give him about a million dollars in depreciation deduction. His taxable income is gonna go from 1.7 to$700,000, and it's gonna save him about$338,000 on taxes. But it doesn't end there, right? If you've got a tax planner, there's more tax strategies to reduce this down, but this was a good start. This is the hiring your spouse tax strategy. A lot of people think, oh, I'm gonna hire my spouse, I want to save money on taxes. No, maybe don't hire your spouse, right? I keep saying hire your spouse tax strategy, but it could go both ways. So these are actually the cost segregation reports that we did for him. So one property he's getting$569,000 in depreciation, another one$314,000, and another one$146,000. And all because we restructured how they file their taxes, how they qualify with the activities that they do. Ladies and gentlemen, if you don't have a tax advisor, please get yourself a tax advisor. If you are our tax advisory client and you're like, hey, Boris, um, actually I've got real estate and my spouse wants to get into real estate, call your tax advisor, be like, hey, I want to start implementing it, or I want to start implementing implementing it in the future. How do I position myself so that my spouse is a real estate professional? You know we will help you, obviously, because we do all of your tax strategies. But if this is of an interest to you, you of course can reach out to your tax advisor and speak to them. If you are completely new, never heard of me before, go ahead and schedule your tax strategy call with my team. And um, yeah, this is it. Thanks so much.

SPEAKER_00: 13:28

That's it for today's episode. Be sure to check out the description below for some free tax reduction resources that Boris put together for you. If you're ready to work with a tax advisor on your tax planning, be sure to schedule your call by heading over to www.taxplanningcall.com. That's www.taxplanningcall.com. And be sure to subscribe to our podcast to be notified when the next strategy is released.