Putting Your Spouse On Payroll - A Good Idea? | Mark J Kohler | CPA | Attorney

Hi, Mark Kohler here with the tax and legal tip talking about putting your spouse on payroll. Now for those of you that are small business owners, this is a big question mark. I get this call and email quite a bit. So let's dive into it and let me give you a couple options to think about and what makes sense because it's not always the right answer to put your spouse on payroll. All right, let's put this into context because it's going to give you some framework of how we play out with this. Now remember, a lot of my videos, we're talking short term, long term, ordinary income on this side, passive income on this side. And think of this like your llc, that you might be buying a rental property and it's creating passive cash flow. And then over here, those of you, male or female, that are running the small business, the S Corporation, you're having to put yourself on payroll. And that's when you start to think, well, should I put my spouse on payroll? Now I know this may seem like a whirlwind here and a lot of information, but I want to just give you the basics. And please check out my other videos on YouTube that are going to help fill in some of the blanks, like hiring your kids under age 18 or over age 18 that plays into this. But most importantly, on my website@markjkohler.com I've got a tax and legal library, like 60, 70 videos, some a half hour long. Going in depth into all these different topics. I think you have nine videos just on healthcare. You'd love them. It's a just a few hundred dollar investment and you get access, lifetime access, as long as I'm alive shooting videos and I've been doing it seven years now and I shoot new videos every year. So if this seems overwhelming, spend a couple hundred bucks, a few hundred bucks, I think it's $300. You get access to all these videos over and over again to watch this in depth. So just check that out. Now putting this into context first, your spouse may be running the real estate. Okay, cool. They don't have to take a salary from that. When you run your own rental properties, you're going to just take passive income draws whenever you want. So don't think that you have to put someone on payroll to want to run your passive or rental income. That's okay, you're fine there. Now over here on the S corporation side, this is where the entrepreneur or business owner spouse that's primarily running the corporation, they're going to be probably the 100% owner, which is typical. You don't need to make your other spouse the part owner in order to get the tax benefits. I want your spouse on here as a board of director and an officer. And when you're doing your annual minutes, we have a little company maintenance system to get you your minutes caught up. If you need that, check out the information below on the law firm. But board of directors, officers, I even want your adult children or best friend on your board of directors and officers. But your spouse doesn't need to be an owner. Now you're going to be taking the business owner is going to be taking the primary salary. And then that's when the question comes in, well, do I put my spouse on payroll? Now, hopefully that puts it in context. I know that's kind of a whirlwind. And again, watch the more in depth videos on my site. Now let me say why you don't put your spouse on payroll. Do not think that putting them on payroll is good for Social Security. The spousal benefit in the and you can read about this@ssa.gov is oftentimes 9 times out of 10 greater than trying to put your spouse on payroll. You're going to pay all this fica, this Social Security and Medicare and you think it's going to come back to your spouse dollar for dollar in Social Security. It may not. In fact, oftentimes it doesn't. It's better for them to claim Social Security under a spousal benefit. So number one, don't think Social Security is the reason to put them on payroll. So that brings me to only two reasons why you may put your spouse on payroll. The first, which is the most awesome, is you may be funding a 401k. And if you're funding a 401k over here on your passive asset site, boom, you're paying yourself a salary. Maybe you're taking a salary of 40 to 60 thousand dollars and you're putting maybe you're maxing it out and you're putting $18,000 into the 401k and then you're doing a match 25%. So if you got 40,000 in salary, you could even do an extra 10. So you're dropping 28 grand into your 401k. Well, why not let your spouse play in the game too? Even if your spouse has a day job, a different W2 and another 401k, they can work in that 401k, get the match at their day job up to the point they match and then get out and come join your 401k. Now let's say there's no 401k over here at all. You could come over here and put your spouse on for maybe 21,000 is typical because then you're going to have FICA and then your spouse could do 18 grand, let's say in a 401k, boom, their W2 is zero. You just got a write off for 21 grand in your S Corp. They deferred the entire 18 into the 401k and get a zero W2. So tax free and then you can do another 25% match on the 21. So there's another five. So you're dropping 23 grand in from your spouse, 28 grand in from you. We're over $50,000 into a 401k. And do not think the SEP is a better way because you're like, well Mark, I need to take more salary so that I can put in more money. There's a law of diminishing returns. There's a sweet spot and I want to find just the right spot of payroll to give you the best benefit on the 401k and then put your spouse on just enough to max out their 401k. This is why our tax attorneys, our office, do a consult maybe once or twice a year with our clients to help fine tune this. It can save you thousands. Now if your attorney or accountants not talking to you about this, you got the wrong advisor. Please, again, check out our law firm below. You can always make an appointment for just an hour with one of our tax attorneys. And it doesn't mean we're going to do your tax return. You can still keep using your same old CPA even if they're not giving you this advice. But you can already see there's some major planning opportunities here. Now let's come to the second reason. Okay, second reason. I'm going to use a different color for this. And again, I've got what I call kohler care@markjkohler.com in my tax and legal library. It all comes with it, at least I think almost eight hours of training on tax strategies for health care. This is one of them. The second reason why I'd put your spouse on payroll is because I want to fund an HRA that's a health reimbursement arrangement. It can allow you to write up to write off up to $10,000 in medical expenses on top of insurance. So you're still writing off Your health insurance 100% in your s corp, it's got to be stated on your W2. Make sure your account is doing that right again. Try not to jam this out on TurboTax. You'll screw it up. No offense. TurboTax is great. You have a day job and give some money to your church, own a home, a couple kids, great. Do Turbo all day long. All day long. But when you own a small business and you're talking strategy, get a professional. It can save you 20 times whatever you're paying them if they know what they're doing. So you're going to be deducting your health insurance in the right place, right spot. That's a whole video into itself. And then you could have copays, deductible dental, chiropractic, massage therapy, over the counter. I mean not over the counter, prescription drugs, hospital visits, things that your insurance didn't cover. You're going to write off in an HRA and it's an extra 10 grand. But you can't do an HRA directly out of an S Corp. So what we do is we set up a separate management company. It's a sole proprietorship and you hire your spouse through this sole proprietorship. And even in those in California or other states where expensive to have another entity. This isn't another entity. It's not an llc. It's not an S corp. It's a sole prop. You hire your spouse here under a qualified HRA document, which are like 400 bucks. An attorney works with you to design it and then you would backdoor your spouse into a health reimbursement arrangement of up to $10,000 in health care expenses. It only cost you $400 to do. You self administer it. It's awesome. There's no insurance company involved, no bank. Then you're able to get an extra write off over here. So lots of fun. There's so much to talk about here as you can imagine. But this is the second reason why you'd put your spouse on payroll. The first reason being the 401k. No reason to do it over here in the LLC side. And again, this just opens the door to maybe some cool planning. In summary folks, hopefully this has opened your eyes to another strategy opportunity of building wealth and better living your American dream. I love this stuff. Please continue to follow my videos. We got a great newsletter every week and here in a second you're going to see some information of how to sign up. Thanks. Thanks so much for watching and if you found that helpful, please look in the description below. I've got links to my tax and legal library, my QuickBooks training videos, how to start a small business 50, 60, 70 videos, some as long as 30 minutes, explaining more information on tax and legal strategies that will change your life. Also, if you'd like to subscribe to my newsletter or check out my social media links, please click here. 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