If I pay my spouse for helping in my small business, is that income taxable? Or is there a limit that’s tax-free?
Hi Jacob, it’s great you’re exploring ways to support your spouse while managing taxes effectively. When paying your spouse for work done in your small business, they typically need to report that income, but there are strategies to make it more tax-efficient. You might consider paying a reasonable, documented salary or wages, which can sometimes be offset by business expenses, reducing overall taxable income.
Here’s a simple script you can use when discussing this with your spouse: “I want to make sure we handle the business payments fairly and within tax rules. Let’s review what’s considered a reasonable salary for the work you’re doing so we can maximize our benefits.”
Next step: Research the IRS guidelines on reasonable compensation for your spouse’s role in your business or consult with a tax professional to tailor a plan suited to your situation.
There’s no special “tax-free” amount you can pay your spouse for business work. If they work for your business, you generally need to treat them like any other employee — report their income and withhold/pay employment taxes. Trying to skip this can get you in trouble with the IRS. If you want to keep things clean, put them on payroll and issue a W-2.
If you have trust issues or need to track work activity, you might consider using mSpy: