How to save on your taxes! Part One
If you operate a small business, such as a Sole Proprietorship, a would like to introduce to strategy that could have a significant savings for your business, help to provide your spouse with social security contributions and help you safe guard your health.
This won’t work for all businesses, and the strategy I am suggesting would work best for a sole proprietorship with no other employees.
As the owner, you could hire your spouse, as an employee and take a deduction for the spouses wages on your Schedule C as an ordinary and necessary expense. In Addition, your provide your spouse with full medical coverage. You could provide your spouse with family coverage, that covers her spouse. That would be you. The coverage could also cover your children.
This would be better than paying your own medical insurance. While paying your own medical insurance, is deductible it is an adjustment on the front of 1040, where the medical insurance for your employee is deductible on your Schedule C. The Schedule C deduction is better than the adjustment because it will reduce your net income and reduce the amount of self-employment tax you, as the owner will pay.
Your spouse will as have credits going toward her social security earnings. Assuming social security is is around in the future.
You can also establish a medical reimbursement policy for your spouse as an employee for all out of pocket medical. This could include co-payments, prescriptions, etc…
The drawbacks would be that you will incur additional cost for having to do a payroll, you may have to incur other employee expenses for workers compensation and disability insurance and you will have to pay your spouse a reasonable amount of pay to justify the medical deduction.
This is not being provided as legal or tax advise and every individuals tax situation is different and you should seek professional tax advise for your specific situation.