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Old 03-03-2013, 12:51 AM
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Do I need to deduct payroll taxes for spouse?

My spouse and I own and operate a small business in California. I want to incude my spouse on the taxes so she can share the SS benifits, but have recently heard that the tax benifits are larger if my spouse were an employee instead. I can pay her a monthly salary, which would qualify as a deduction for our business. But do I have to deduct payroll taxes from her check? And does that mean my self-employment tax would be less? Is this even possible or am I misinformed? Thanks!



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Old 03-03-2013, 01:42 AM
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“My spouse and I own and operate a small business in California. I want to incude my spouse on the taxes so she can share the SS benefits, but have recently heard that the tax benefits are larger if my spouse were an employee instead. I can pay her a monthly salary, which would qualify as a deduction for our business. But do I have to deduct payroll taxes from her check?”========You can make your spouse an official EE. Pay her a regular salary(you need a W4 from her, an EE), withhold income tax and employment taxes,Soc Sec tax, deduct contributory employee expenses—retirement plans or etc on W2.As you live in a community pty state, UNLESS your biz is an S corp or ref C corp, then as long as both you and ypur spouse jointly run the business(as sole proprietorship/SMLLC in community pty states), you may qualify to file as a sole proprietorship rather than a partnership. The IRS has determined that in the case of spouses owning a partnership, they do not need to file as a partnership on Form 1065, with individual K-1 forms.Then each of you file Sch C and pay each of your self employment tax and can deduct 50% of each person’s SECA tax on return. To qualify, both of you must share the items of income, gain, loss, deduction, and credit in accordance with each spouse's interest in the business. You, The spouses, must be the only partners and both spouses must materially participate in the business. The respective shares in the business are determined. The respective shares in the business are determined by the partnership agreement.Both spouses file a separate SchC, showing that person's share of the income, deductions, and any profits/losses.Both spouses also file a separate Sch SE, showing that person's self-employment income.The election for a qualified joint venture stays in effect as long as the spouses meet the requirements.

“And does that mean my self-employment tax would be less? Is this even possible or am I misinformed?”====Yes as long as you pay your spouse salary, the salary expense will reduce the net amount of yur self-employment reported on Sch C line 29/ 31 and this will reduce your self employment tax on Sch SE and 1040 line 56(However, you , as a self employer, can deduct 50% of your self employment tax on 1040 line 27).You can deduct your spouse’s salary exp on Sch C line 26; you can also deduct soc sec tax that you match for her on Sch C line 23;you must pay half of the Social Security tax of your EE. That being the case, the amount you deduct from your employees’ salary is the same amount you will pay as Social Security tax on her behalf.



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Old 03-03-2013, 02:16 PM
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It seems the larger tax breaks are if she were an EE. We are a sole proprietorship business. Is it true that I can write off 100% of her medical expenses? So basiclly, I could offer her medical benefits, but she would carry our family as the policy holder, making me able to write off 100% of the medical expenses. Rather than only writing off 60% if I were providing my family medical benefits. Also, would I have to take out workermans comp; I've never had en employee before?



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Old 03-03-2013, 08:47 PM
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“ Is it true that I can write off 100% of her medical expenses?”==== as long as your health insurance is established in your name or the name of your business ,You may deduct the cost of health insurance for you, your spouse and dependents if you are self-employed as above the line item(it reduces your AGI on 1040 line 37/38 which means it reduces your AGI dollar-for-dollar. “Depending on your tax bracket, it could represent a substantial reduction in your tax” liability). There are limits to the total amount that you can deduct every year. According to the IRS, you must take your annual self-employment income, subtract your 50% tax deduction for self-employment and all retirement account contributions,i.e., SEP-IRA, SIMPLE-IRA, or Keogh plan. The remainder is your allowable annual health insurance premium deduction. You may deduct up to 100% of your health insurance premiums, but it can't exceed your total annual income from self-employment. You need to record your self-employment income along with your business expenses for the previous taxable year. Even if you earn the majority of your income from other sources aside from self-employment, you will qualify for the health insurance deduction from the IRS. You will not be eligible for the insurance deduction unless you gain access to this insurance through your business or profession. So as you have self-employment income, then you can take a deduction for health insurance expenses incurred for yourself, your spouse, and your dependents on Sch C. You can deduct Medical insurance; dental insurance; long-term care insurance premiums for the self-employed person, that person's spouse and dependents, and adult children to age 27 even if they are no longer your dependents, can be deducted as part of the self-employed health insurance deduction. If you are reporting a loss from your self-employed activity, then you are not eligible to deduct your health insurance costs since this particular deduction is limited by your self-employment income. You can however still claim the health insurance expenses as an itemized medical deduction on Sch A as long the costs exceed 10% of AGI for 2013, NOT 7.5% any more.



“So basiclly, I could offer her medical benefits, but she would carry our family as the policy holder, making me able to write off 100% of the medical expenses. Rather than only writing off 60% if I were providing my family medical benefits.”========= NOT in your spouse’s name; as long as your health insurance is established in your name or the name of your business, and you don’t have the option to get coverage through another source—such as a spouse’s employer-provided plan—you absolutely can deduct your health care premiums; as long as you have self-employment income, then you can take a deduction for health insurance expenses incurred for yourself, your spouse, and your dependents. You do not have to itemize medical expenses to take the deduction.you need to subtract the health insurance deduction from your medical insurance when figuring medical expenses on Sch A (Form 1040) if you itemize deductions. For tax years beginning before or after 2010, you cannot subtract the self-employed health insurance deduction when figuring net earnings for your self-employment tax from the business under which the insurance plan is established, or considered to be established.
“Also, would I have to take out workermans comp; I've never had en employee before?”===== You are required to carry WC if you have 1 or more employees. California law requires employers to have workers' compensation insurance if they have even one employee.You as owner are automatically EXCLUDED from coverage, but may optionally elect to be covered. If you want coverage for yourself, then you will be assigned a payroll for rating purposes, regardless of what you actually make. I guess it varies from state to stae;So, you may call 1-800-736-7401 to hear recorded information on a variety of workers’ compensation topics 24 hours a day.



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