Episode 45. How to Hire Your Spouse Tax Strategy

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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.

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

Ready to start saving money on your taxes?
☎️ Schedule your FREE Tax Advisory Session: https://taxplanningcall.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 ...

Episode Transcript

SPEAKER_01 (00:00):
Hey and welcome back to my channel.
Today I want to talk to youabout hiring your spouse tax
strategy.
So a lot of business owners havea business, they become very
successful, and then they hiretheir spouse to work with them.
Naturally, the spouse comes andhelps in the business.
But what happens is that veryoften they start paying their

(00:22):
spouse a salary, which is okay,but very often it's done
incorrectly with some planningthat is not real.
Okay, so I want to show you andtell you and really teach you
how to properly hire your spouseon payroll, what to pay your
spouse, what not to pay yourspouse, and when not to pay your
spouse.

(00:42):
So we're gonna cover everything,including the fact that a lot of
business owners say, you knowwhat, I hire my spouse because I
want to because I want tomaximize her social security, or
I want to maximize herretirement.
So we're gonna talk about all ofthat here.

SPEAKER_00 (00:56):
Welcome to the tax reduction podcast for
money-making entrepreneurs withBoris Musheev.
Boris has helped entrepreneursacross the United States
collectively save millions ofdollars in taxes with the power
of tax planning and advisory.
The only way you, the businessowner, can save money on taxes
is by using proactive taxstrategies.
And this podcast is all aboutsaving you money on taxes.

(01:20):
Boris will share with youin-depth and easy to understand
tax reduction strategies thatyou can implement in your
business within 30 days or less.
Let's jump into today's episode.

SPEAKER_01 (01:30):
Okay, cool.
Uh, let's kind of uh get thisgoing.
Let's talk about hiring spouse.
Okay, so um, this is actually aperfect example because I spoke
to a client, he's not gonnadisclose his real name, but
we're gonna call him Robert.
Okay, so it's very close to hisreal name.
So his name is Robert, and uh,we just got off the projections
call, and he's going to besaving on his taxes$338,000,

(01:55):
okay?
And the whole strategy involved,believe it or not, whether you
need to hire your spouse or nothire your spouse.
And in his case, we came up witha strategy not to hire the
spouse and save him that muchmoney on taxes.
So we will dive deep into asituation as well.
I actually printed some uhmaterials that this is his exact

(02:17):
situation, his case study.
We're gonna talk about that, butI want to get into hiring
spouse.
Okay, let's get uh into thebasics.
Now, first of all, you have tounderstand a lot of people think
I'm gonna hire my spouse, so Itake it as an expense in a
business.
No, it's just taking money fromone pocket, right, and putting
it into another pocket.
That doesn't work that way.
It's your money, you file taxestogether because you have a

(02:40):
flow-through entity.
Most likely, if you're a smallbusiness owner, you probably
have an S corporation.
If you don't have an Scorporation, speak to your tax
advisor and get yourself an Scorporation.
Okay, so we're gonna assume thatyou have an S corporation, so
it's a flow-through entity.
Hiring your spouse subjects youto paying payroll taxes, okay?
So remember you pay payrolltaxes as an employer.

(03:03):
Every time you pay somebody ahundred dollars, whether it's an
employee, whether it's youyourself, or you're paying your
spouse, you're paying$7.65 inpayroll taxes.
So for every thousand dollars,you pay$76, okay?
And for every$10,000 or forevery$100,000, and it goes on.
Your employee pays exact sameamount on their side.

(03:25):
So when you hire your spouse towork 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 saywasted?
In most cases, at least with myclients, tax advisory clients

(03:48):
that we have in our tax advisoryfirm, their spouse does not work
for them in a business.
Okay, they the spouse does notwork in a business, they still
pay them a salary because theythink they want to maximize
retirement, which I'm gonna getto in a second.
Okay, and they actually end upoverpaying in payroll taxes.
Now, if your spouse does in factwork for you in a business, then
you don't need to pay them thiscrazy phantom salary.

(04:11):
I had a client be like, Well,Boris, like his wife actually
got mad at me.
She's like, Well, what do youmean he can't pay me from the
business?
I'm like, Well, do you shareyour finances?
She's like, Yeah.
I'm like, does he do you guyslike share the same bank
account?
She's like, Yeah.
I'm like, so what's the problem?
He'll take distributions andhe'll pay you.
She's like, Oh, he can do that.
I'm like, yeah, and it's gonnasave you payroll taxes.

(04:31):
Okay, so if your spouse reallydoes work for you in the
business, then you pay them anormal wage, right?
Whatever you would have paidyour anybody else that would
have done their job.
It's$20 an hour,$25 an hour, butnot$60 an hour.
Okay, in most cases, we eithertook this uh uh spouse off the
payroll, okay, or wesignificantly reduce their
salary, the spouse, becausefirst of all, the spouse in most

(04:54):
cases is not an owner of thatbusiness, and they can get paid
regular wages, they don't haveneed to have that reasonable uh
compensation calculation as theowner does uh under the S
Corporation rules.
As long as you pay them fortheir hours, that's it.
You don't need to pay themfandom salary.
So hiring your spouse, that'sstrategy number one.

(05:14):
Either take them off payroll,which I will talk about why
later on, or completely reducedown.
That's gonna help you save onpayroll taxes.
Okay, Robert, the client thatwe're gonna talk about here,
actually had his spouse onpayroll.
Now, before we get to the Robertand talk about how he saved
$338,000, let's talk aboutanother myth that business
owners say, Well, my spouse ison payroll because um I want to

(05:40):
maximize their retirement.
I want to get a retirementdeduction.
So let's just take a simplescenario.
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 payrolland you do 401k.
You as an employer or anemployee, excuse me, you as an
employee of your own businesscan put away$23,500 as an

(06:02):
employee deferral into your401k.
Okay, that's if you're under theage of 50.
Your spouse can do the exactsame thing.
Put away$23,500.
This is before the 3% companymatch, 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?

(06:22):
If you are in a 30% bracket,then you're gonna save about
$6,000.
But you're gonna end up paying15% payroll taxes on your
spouse's salary.
So if you take 30% minus the15%, you're really left about
15% of tax savings.

(06:43):
When your spouse retires, yourspouse is gonna pay taxes on
that retirement income.
And most likely, if you are aprofitable business owner that
is super successful, have somecash accumulated investing, and
if you're not doing any of thatstuff, get yourself a tax
advisor, start saving money ontaxes if your business is
growing, okay, then your spousemost likely is gonna be in a

(07:04):
higher tax bracket.
So really you're not saving muchmoney, okay?
And instead, your spouse isgonna overpay.
Now, I'm not saying this is thesame scenario if your spouse
works for the business.
If your spouse works for thebusiness, like I said earlier,
reduce down their salary, stilldo the retirement.
But if your spouse does not workfor the business and you they
are on payroll because you wantto maximize their retirement,

(07:26):
the math doesn't make sense.
I've done this with a lot of ourtax 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 thatthey do, that their preparer
possibly didn't tell them, andthey do all these searches
online.
I actually have a lot moreclients emailing me, be like,
Well, I looked something up onChat GPT.
Well, you should know you gottaalways fact-check, fact-check

(07:49):
Chat GPT, although I love usingChat GPT for other reasons, not
tax research, okay?
So, with that being said, if youever want to stop using Chat
GPT, just get yourself a taxadvisor.
That's all I can tell you.
The only reason you're probablyoverpaying in taxes and not
getting proper advice on how totreat payroll for your spouse is
because you do not have a taxadvisor.

SPEAKER_00 (08:08):
If you have a tax preparer and you do not have a
tax advisor, the only way youcan save money on taxes is by
using proactive tax planningstrategies that only a tax
advisor can give you.
Boris put together a free PDFfor you, the business owner.
Seven tax write-offs every SCorporation business owner must
know.
In this PDF, you can find seventax strategies that you can

(08:32):
start using in your business toinstantly start saving money on
taxes.
Click on the link in thedescription below for a free
download.

SPEAKER_01 (08:39):
Now, those are the two things about the hiring a
spouse.
Let's talk about Robert and howRobert, my client, is going to
be saving$338,000 on payroll.
Uh, excuse me, on taxes, not onpayroll, but on taxes.
Okay.
So Robert came to me.
He's a uh new tax advisoryclient.
He started working with us thisyear.
I did his tax plan and I askedhim about what his spouse does

(09:00):
for the business.
He's like, well, she he said sheworks for the business.
She doesn't put in a lot ofhours, she does mainly light
administrative tasks, she helpshim stay organized with the
finances and so forth.
I'm like, okay, cool.
Uh we found out he's overpayingher.
I think he was paying her closeto a$85,000 a year.
So, right off the bat, after thecalculation, like that salary

(09:21):
could have been reduced to like$40,000 or even less because
she's putting in way less hoursand she's doing clerical work,
so to speak.
Okay, so I'm like, you're gonnasave money on right there.
But I said, how about we justcompletely take her off payroll
and fire her?
He's like, wait, what?
We're gonna fire my wife for mybusiness?
I said, Yes.

(09:41):
The reason I said that, becauseRobert owned three big
properties, all commercial realestate.
Okay, and I said, Look, Robert,if your real estate commercial
real estate properties, by theway, are already redu uh
producing a loss, and you'vebought a new one that's gonna
produce a loss, these losses arenot tax deductible to you
because you are a business ownerand you're actively

(10:04):
participating in your businessand not in real estate.
What if we take your wife offthe payroll, take her out of the
business, and instead she'sgonna help you manage real
estate?
And I said, by the way, how muchof real estate does she already
manage?
He said, Well, she actuallymanages all of it.
And the new building that wejust bought, she's just gonna be
super busy with that becauseit's like a lot of tenants, it's
a commercial building.
I said, Well, we can qualify herfor what's called the real

(10:26):
estate professional.
We'll take her off the payroll.
He's like, Well, boys, whatabout my health insurance?
I have health insurance throughher.
I'm like, well, just switch itto your name.
He's like, Well, yeah, it's onlygonna cost me a few hundred
dollars, right?
So we did the whole thing.
We took her off the payroll, wequalified her as a real estate
professional.
To meet the definitions of theIRS, a lot of people think in
order to become a real estateprofessional, you need a real

(10:48):
estate license.
Nope.
You just have to meet the simpledefinition of the IRS rules,
what it means to be a realestate professional.
Number one, more than 50% ofyour time has to be spent in
real estate, which she willRobert's wife will now start
doing, okay?
And she has to spend at least750 hours in real estate, which

(11:09):
she easily meets.
Now I told Robert, now you'vegot this new prop a new property
and two other properties.
We're gonna do what's calledcost segregation on it.
Cost segregation is thisbasically appreciated
depreciation on your property.
He got kicker, he got about amillion dollars in additional
depreciation deduction.
His net profit, by the way, wedid his projections, right?

(11:32):
So I do this with all of my taxadvisory clients.
We do projections.
I just got off the projectionscall with him.
He said, income is 1.7 million.
How can we reduce down myincome?
We talked about it.
We took the spouse off payroll,we made a real estate
professional because she barelyworks in a business, she works
more in real estate, so we madea real estate professional, and
we are doing cost segregationstudy, which is gonna give him

(11:55):
about a million dollars indepreciation deduction.
His taxable income is gonna gofrom 1.7 to$700,000, and it's
gonna save him about$338,000 ontaxes.
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 agood start.

(12:16):
This is the hiring your spousetax strategy.
A lot of people think, oh, I'mgonna hire my spouse, I want to
save money on taxes.
No, maybe don't hire yourspouse, right?
I keep saying hire your spousetax strategy, but it could go
both ways.
So these are actually the costsegregation reports that we did
for him.
So one property he's getting$569,000 in depreciation,
another one$314,000, and anotherone$146,000.

(12:40):
And all because we restructuredhow they file their taxes, how
they qualify with the activitiesthat they do.
Ladies and gentlemen, if youdon't have a tax advisor, please
get yourself a tax advisor.
If you are our tax advisoryclient and you're like, hey,
Boris, um, actually I've gotreal estate and my spouse wants
to get into real estate, callyour tax advisor, be like, hey,

(13:03):
I want to start implementing it,or I want to start implementing
implementing it in the future.
How do I position myself so thatmy 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 toyou, you of course can reach out
to your tax advisor and speak tothem.
If you are completely new, neverheard of me before, go ahead and
schedule your tax strategy callwith my team.

(13:25):
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 thedescription below for some free
tax reduction resources thatBoris put together for you.
If you're ready to work with atax advisor on your tax
planning, be sure to scheduleyour call by heading over to
www.taxplanningcall.com.
That's www.taxplanningcall.com.
And be sure to subscribe to ourpodcast to be notified when the

(13:50):
next strategy is released.