Save Taxes: Pay your spouse for his help

Dear June,

Thank you, thank you for speaking in a voice that I can understand. I'm beginning to feel a little less like Alice going down the rabbit hole :-)

About me - I teach classes to homeschoolers. (I realize that sounds like an oxymoron, but in today's world "home education" is more like "parent directed education" and doesn't have to take place in the home exclusively.

So far, from reading your site, it doesn't sound like I need to incorporate. I'm not worried about legal liability and I don't have business debt that I need to protect personal assets from. Your book is on its way and I look forward to learning about taking advantage of more deductions. I plan on paying my children and my husband.

So far so good! Here's my question: Is there any other reason to incorporate given the fact that as a sole proprietor my income is being taxed at my husband's rate? I guess I'm confused because if I pay him then he still has to declare the income, correct? So aren't we back where we started? Am I missing a piece of the puzzle here?

Thank you again!

Renee from Houston, TX



Hello Renee,

You are very welcome. I am so pleased my writing is useful to you.

The hiring of a spouse is a big puzzle to explain in a short post that's why you are missing a few pieces here and there. But let me give you a few more pieces to the puzzle.

If you hire your spouse, yes the income is simply moved from your side of the return to his. No tax break there. The advantages come with your spouse as an employee in this way:
** You may now deduct travel costs for him when he is on a business trip with you. If he were not your employee, even though he conducted business for you while traveling, you could not deduct his travel costs.
** You could provide him and his family [that includes you and your son] with medical coverage and thereby deduct as your business expense all health insurance and other medical costs.
** Were you to set up and contribute to his pension that would also be a business deduction for you.

How's that for starters?

Best,
June