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Hiring your spouse

Hiring your spouse

Hiring your spouse

(OP)
I'm currently going through the process and setting my business up.

Got the PE, have registered my name, and now I'm looking for a logo with other marketing materials.

I'm very fortunate that my wife is a graphic designer who specializes in creating corporate identities and she is working on mine.

Here is my question.  A normal identity package will start at about $5,000 and go up from there.  She runs her own firm as will I soon.  Is there any benefit to me paying her for the work.  I will be claiming a business expense which she will then claim as income.  No money will actually change hands it will be just be a few numbers in each balance sheet.

It seems like in the end it will be a wash with the taxes but is there anything I'm missing with this.  Perhaps there is some other benefit to doing this that I'm not seeing.

RE: Hiring your spouse

One comment, you need to make it more formal than a balance sheet transfer.  The IRS is very sticky on that.  

Personally I would set up (and in fact did with my woife under similar circumstances) a simple contract and issue a work order.  You will then need to write her company a check from your bank account and she will need to deposit it into hers.

To get back to your question - there could be some savings or a difference in how it affects each bottom line, depending  on what each's marginal tax rates is.  As a start up yours will probably be low as you have allot of start up costs.  If you run at a loss your deduction for it will provide little benefit.  Your wife on the other hand may be established, running at a nice profit and she may get her $5,000 taxed at a higher rate.

So, yes there are some considerations to take into account.  But please formalize it.  In fact, I pay my daughter to do work around the office, I pay her (15 years old) the maiximum amount allowable so that she does not have to file a return.  She opened her own bank account and she gets a company check based on a time sheet every month.  Helps me on taxes and teaches her how to manage a check book and cash flow.

Greg Lamberson
Consultant - Upstream Energy
Website: www.oil-gas-consulting.com

RE: Hiring your spouse

James,

I am no expert as i am not yet running a business yet.

But it sounds like you are jumping the gun a bit.

You need to earn profit before there can be any tax benefits. Most companies struggle just to balance the books in the first year.

If you end up in debt on the first year then you will not pay tax, but your wife will on that $5000.

Have you considered the option of getting the basic package for free and then paying for further enhancements after your company starts profiting?

RE: Hiring your spouse

csd72

That's what I was getting at, if you have a small profit and fall into the 10% tax bracket, that $5,000 expense will be worth $500; your wife on the other hand, if she has a good year and is in the 35% bracket, that $5,000 will be hit with $1,750 in taxes.

All business decisions, regardless how small, should consider tax impacts as part of the equation.

Greg Lamberson, BS, MBA
Consultant - Upstream Energy
Website: www.oil-gas-consulting.com

RE: Hiring your spouse

(OP)
Now I see why many of you recomend getting an accountant.

RE: Hiring your spouse

In addition to the explanations you got above, I would add the following.  

$5000 seems high for an identity package, unless it includes printing of letterhead and other materials, or includes extensive brochure development.  If it does, I would suggest you consider starting smaller.  You do want a good identity kit - logo, letterhead, etc.  You may want a good brochure -- but don't go overboard.  The brochure should evolve as you learn what you are doing, what works for what you are doing, and what sells for what you are doing.  You can easily modify things if you have not printed large quantities.  Many people propone using computer printing on an as needed basis to generate hard copy.  I have mixed feelings about it -- it really depends on what you are printing, how much you are printing, and what you are doing with it.  It is NOT the way to go, in my opinion, for the equivalent of a multipage glossy brochure.  Also consider that a lot of your communication may be electronic - so be sure you have electronic versions of your material -- Word, PDF, etc.  -- and they are cheap to change.  

Jack

Jack M. Kleinfeld, P.E.  Kleinfeld Technical Services, Inc.
Infrared Thermography, Finite Element Analysis, Process Engineering
www.KleinfeldTechnical.com

RE: Hiring your spouse

Here's a money saver that my accountant turned me on to and is saving us big bucks.

We made my wife the one and only employee of my company and then provide full health coverage for all employees.  

That way her health insurance coverage is paid 100% by the company.  

Since I am her spouse, I am simply listed on her policy.

We are in Colorado and that is legal here.  You may want to ask your accountant.

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