Husband-Wife Business and Insurance

Hi June,

Welcome back! I have been checking your blog and hoped you were on vacation and not ill.

I started my own business June 1st. I sell noni juice, run a canister route for charity and do some janitorial work. Problem was my husband had no job. (We worked together for a company and quit together.) I got a tax consultant/accountant and he recommended I hire my husband as an employee.
I know you mentioned doing just that in your book, Self-employed Tax Solutions.

Now here's the problem....For the janitorial work I have to have liability insurance (not that big a deal) but since I hired John the insurance company says I must have a workmens comp policy to cover him. This is a big deal as I am not making very much money and it costs $1,014.00 per year. I can pay quarterly, but still gee wiz!

Now finally for the question, can we save money by becoming partners? Is co-ownership just another word for a partnership? As things are set up right now John is only my employee for the janitorial work which is not bringing in much money. We would like to split profits from all 3 ventures 50/50. What would you recommend?

Thank you for your time June, sincerely, Yvonne(in Illinois)


Hello Yvonne,

First, try to combine all you business efforts into one business if at all possible. Perhaps you provide a variety of general business services to other small businesses. That will make recordkeeping much easier because you won't have to allocate expenses between two or more places -- for instance a run to the post office or a supply store, or the purchase of a computer.

Liability insurance generally covers injury to another person. For instance, if a client walks into my office and trips, my liability insurance would cover that. Do you understand why you have liability insurance for yourself? Whether to have liability insurance is generally a choice you have.

Property insurance [often combined with liability insurance] covers damage to someone's property. For instance, you break a window while cleaning it.

Workers compensation covers injury to an employee. It's the state [Illinois, in your case] regulation/law that determines whether you must have workers compensation. It is not determined by insurance companies. In some states you are not required to have workers comp if your spouse is your only employee or if you have fewer than three employees. In New Mexico it is not required for a spouse. In New York it is. If it is required, some states will sell you the coverage directly and/or you may choose to purchase it from an insurance company. The cost depends on the wages paid and the kind of work. More hazardous work means a higher insurance premium. You need to get more information from someone/someplace other than your insurance company. When I researched this for a New York client it took umpteen phone calls to find the right department and get a correct answer. I hope Illinois is more organized.

Co-ownership is just another word for partnership. And you don't want that type business structure. Sole proprietor with spouse as employee is the most tax advantageous structure for a husband and wife business. As I've said to a number of folks who have emailed me: I am working on a publication with a complete explanation. There's just not enough time finish it!!! Anyway, with your honey as your employee you may give him a medical and dental plan for him and his family -- that you! and kids if there are any -- and a pension. All those costs would be deducted from your business income. Not so in a partnership.

This should point you in the right direction.

And, thank you so much for your generous comment about my book on Amazon.

Best,
June