Single-member LLC: Is it advisable to officially hire my spouse?

Hello!

My business is a single-member LLC/sole proprietorship based in NYC, USA. I file taxes with a Schedule C and self-employment tax as an individual, not an entity.

My spouse is currently unemployed but has recently started taking on some responsibilities for my business.

*What are the benefits and downsides of hiring them as an employee of my LLC?

Would this require me to obtain unemployment insurance and health insurance, and also change my business structure and tax filing method?

If I hire them as a temporary contractor instead of an employee, would that negatively impact our taxes more than if they remain officially unemployed? They would have to pay income tax, but I would expense their invoices would that balance things out?

4 Likes

My CPA advised against hiring my wife and suggested increasing my own salary instead. However, every situation varies. I recommend consulting a CPA. It might cost around $200, but the time saved compared to researching on your own could be substantial.

3 Likes

Employing your spouse can be advantageous if they offer genuine services for your business. It’s advisable to consult a CPA for guidance, or start by reading a book like “How to Pay Zero Taxes” by Jeff Schnepper from the library. While the book provides informative tax advice, it’s essential to seek professional advice to develop concrete plans.

2 Likes

Benefits may include the possibility of tax savings by deducting their salary as a business expense, and you could offer them benefits such as health insurance. However, transitioning to this arrangement may necessitate setting up payroll, paying employer taxes, and potentially providing benefits like unemployment insurance. Your business’s structure and tax filing procedures might require adjustments, and compliance with employment laws would be necessary. Hiring them as a contractor introduces tax implications that vary based on specific circumstances, potentially allowing you to offset their income with business expenses. It’s essential to consult with a tax professional before deciding to ensure the most favorable outcome for your circumstances.

1 Like

You should consult with a CPA who specializes in NYC taxes and your specific industry. There are multiple layers of taxation, and a CPA can help you structure your finances to legally minimize taxes and maximize your benefits.

Hiring your wife can be feasible if she genuinely performs work for the business and receives a W-2. However, both she and you as the employer would be subject to income taxes. In some states, such as ours in the Northeast, the unemployment insurance rate can increase each time a claim is filed. So, if your wife is employed and later files for unemployment, your company’s unemployment insurance rate may rise, affecting all employees.

Your industry also plays a crucial role. For instance, in our case, hiring a spouse might increase our worker’s compensation premiums, even if she works in an office role.

Every decision has consequences, so it’s important to consider all these factors carefully.