Should My Spouse Own my Business Too? Should I Pay Them? [E184] - Business By The Numbers
Remarkable Results Radio Podcast
Should My Spouse Own my Business Too? Should I Pay Them? [E184] - Business By The Numbers
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This is the Aftermarket Radio Network.
Welcome to another episode of Business by the Numbers.
I'm your host, Hunt Demarest, CPA with Paramellas & Associates.
So I've been doing some work with an attorney to work on my own estate planning.
Hint hint, if I'm working on this at age 37, how should you feel at age, and to your
name here?
And the topic of spouses owning assets have came up.
I, like a lot of you, am self-employed and have thought a lot about spouses being on business
or spouses being on payroll, but wanted to share some do's and don'ts about spouses
and being self-employed, estate planning, payroll, and everything else in between.
Before we get into that, I just want to stop and say thank you to you and the
rest of the dedicated listeners.
Remember, if you have a question for me or want to hear a question answered on
here, shoot me an email at podcast.paramellas.com.
I want to talk to you about accounting and tax services for your auto repair shop.
Shoot us a text at 301-307-5413.
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So this week's episode, we are going to talk about everything related to having
your spouse on a business.
Should you file together?
Should you pay the spouse on there?
And a lot of different things, but I want to go back to what I talked about
originally on this.
Why did this topic come up and what did I learn from the exercise that I did
with my attorney are still doing it?
First and foremost, what we're talking about here is estate planning.
To give the cliff notes on what we're doing here without giving away personal information.
If you die and you have not done any work with an attorney to figure out who owns your
business, who owns your real estate, and everything else on it, you could be paying
a lot of taxes in today's day and age with the estate tax rules on it.
Most of you guys probably don't have taxing considerations, but could, but it becomes
a much, much, much bigger nightmare for your necks of kin to figure out.
If estate planning is done correctly, there's no questions.
There's always going to be sadness.
There's always going to be, you know, some level of confusion and fear.
But if people put into work to set up the trust, to set up the estates, set up their
advanced directives on this, then a really, really bad situation doesn't become good,
but it becomes less crappy.
I know this stuff sucks, but again, like I kind of joked about before, I'm 37
and doing this probably older than I am.
If you haven't done this stuff, you need to be doing it.
Another thing that I learned, taxes and estate planning can be at odds sometimes.
And if we kind of broaden this a little bit beyond just taxes, but, you know, financial
structure, business structure in estate planning, sometimes these two can be at odds, but they
shouldn't be.
Now, in my situation, it's a little bit easier for me to go and talk to the lawyer because
I am my own accountant.
So anytime I'm talking to a lawyer, the lawyer's talking to their client and
the accountant as well.
I mean, my lawyer doesn't see that as a good spot on here, but the reason I mentioned that
is your estate planning should be no different.
Just like we talked about a lot with setting up your business, if you let an accountant
set up your business, we are going to set up a certain way because we have a lot of
consideration and concerns, probably two biggest consideration concerns of accountant.
What is going to make the most amount of money?
What is going to pay the least amount of taxes?
Now, if you want to go to a lawyer and a lawyer sets up your business, they're
going to set up very differently as well because they generally have one thing and
it's asset protection.
What is going to protect this person the best case possible?
Estate planning is exactly the same.
If you go all the way this way, you could be spending a ton of money.
It could be not even possible.
But again, just looking at this and saying, hey, that's too much work.
This could be too complicated.
Everyone, everyone, everyone should be doing this stuff.
To what level?
Probably depends on your overall intentions and your overall assets as well.
And lastly on this, what did I learn?
A little bit of things.
All the stuff that we're going to talk about here now are all quick, easy,
cheap things to do.
Now, obviously the lawyer's time and all that stuff has a cause to this.
But a lot of the things that you need to be doing or should be doing now for
your estate planning is just work and it's not money.
So there's really no excuse on that.
Why did this all come up?
How did you go from figuring out your will estate planning to talking about
spouses and spouses owning your business?
The reason that this kind of came up is this is part of the estate planning.
If you're married, what you own and what your spouse owns is your first
planning opportunity.
And this is where this stuff starts to get a little bit tricky.
Because again, I'm talking about this as my experience in Maryland.
Some of these are federal rules.
Some of these are state by state rules.
So again, if you're listening to this and
trying to take real estate tax advice, you're missing the point.
This is what I've learned.
This is to hopefully get you to go and
talk to the professionals to do it for you and your business and your objectives.
But where I kind of didn't really think about this is I always thought of
spousal assets as kind of one big bucket.
Me and my wife are married, whatever I have, she's gonna get half of it,
alive, dead.
I never really cared, hey, this car is in my name, that car is in her name,
this real estate is in my name, this business is her name, whatever it is.
And even a lot of this stuff, we have a lot of this where it's just
gone jointly.
But what I found out is a lot of that makes a very big difference.
The overall idea here is that it's different to have a house that is owned
100% in my name, right?
Let's say we have a house and it's worth a million dollars.
If that is all in my name and it has to transfer to my wife,
even though there couldn't be, there might not be any tax consequences,
that's still a million dollars transferred to my wife.
Now if my wife owned all of that and I died,
there is nothing transferring cuz she owns all of that.
Now you might be saying to yourself, well, I don't probably wanna transfer
any of it to my spouse, my spouse might not wanna transfer any of this to me as well.
But what I also found out is there's ways to do this but
still have it in both people's names.
This is more common in real estate, I've seen this in real estate but
maybe never really understood it.
But let's say me and my wife owned our house jointly.
So all these states are different, but essentially the way that it works on
a lot of these is only one person is owning it.
The person that's on the top, you see this a lot in brokerage accounts.
If we have person A in person B on a joint brokerage account,
the person that's on the top one is gonna get it reported in their social security
number.
Yeah, the ownership is joint on it, but for
a lot of these things, they only look for one person.
What is the solution behind that?
There's something called a tenants in common.
And so what you would do in a situation like that is like the title
alludes to, we are both tenants and we're sharing in common in this asset.
So instead of this being Hunt and his spouse owning this entire thing 50-50,
Hunt's gonna own this half and his spouse is gonna own the other half.
It's essentially going into the local county office, paying them $60 and
saying, instead of me and my spouse owning everything, I'm gonna own this half
and they're gonna own this half.
It puts you both on there for your legal amounts.
You can do the same thing for brokerage accounts.
You can do the same thing for a lot of different things.
And there's no downside to this.
You might come back and say, well, hey, what happens if you get a divorce?
What happens if you get a lot of that stuff?
I would argue most of this stuff is already probably gonna be joint ownership
anyways.
But again, your results may vary, you need to look into this.
The reason that I bring this up though is because this is something that I've
never really thought about.
Who owns businesses, and we'll talk about a little bit,
is something that's come across my radar?
But generally not in the thought of estate tax planning.
Usually when we talk about this stuff,
we're talking about I own a repair shop, should my spouse be on it?
I own a repair shop, should my spouse be claiming a tax deduction?
I own a repair shop, should my spouse be on payroll?
There's a lot of different things that come aboard with this.
So I'd like to be honest with you guys because again,
some of the stuff we talk about parts reconciliation, different tax planning,
there's some stuff that I say, this is how we're gonna do it.
But there's other things where I will admit in practice,
this is what's going on.
If you were to look at this and I was to stop right there on
estate tax planning purposes, you might have some direction on this.
You probably have some loose random recommendations here.
But what I found out is this.
All of your assets that you have, whether it's a watch,
whether it's a car, whether it's a piece of real estate,
or whether it's a small business on it,
all of these things are looked at virtually identically
in estate tax planning purposes.
All of these are assets and all of these have a value.
And there is a big argument that in a perfect world,
you should be able to split all these up and they're kind of
held in a 50-50 bucket.
There's no benefit of one of them having more than the other
when in most cases it's all gonna be looked at as 50-50.
What is stopping most people from going and saying,
I'm gonna transfer this, you're gonna transfer that
and everything else in between?
So the big thing that you gotta look here
is assets versus liabilities.
What is the positive?
What is the asset that I get?
What is the liability that comes along with it?
And again, what is the best case if I transfer this?
What is the worst case?
There are some things that I think
that you can transfer pretty loosely.
Bank accounts, brokerage accounts, real estates,
maybe, cars, personal assets, joint or individuals.
On the business side of it, as my lawyer recommended to me,
he still did not recommend me transferring
my ownership interest and why is that?
So there is a large argument that I have
an ownership interest and specifically
in service business on it,
having part of my interest transferred to my spouse
probably didn't get me out of any liability
and it now brings my spouse on board.
Why?
I'm gonna be here every single day.
I'm doing this podcast, I'm talking to clients on it.
I'm always gonna have a liability.
If my wife is not on the books at all,
she doesn't work here,
then she is not gonna have any liability.
We would be solving hopefully one issue
by bringing her onto this for state tax planning purposes,
but again, the liability or prospective liability
of having the spouse on a business
kind of outweighed them.
So some of the brokerage accounts,
some of the cars, different things where it's a no-brainer.
Yeah, let's transfer this over
because again, we're trying to have the best case scenario
for our entire family unit.
But what I see too much happening
is people try to get their spouses
involved in all this stuff with good intentions.
I own everything, she owns everything, he owns everything,
however you wanna do this stuff.
But again, there could actually be some liabilities
that you're not thinking about here
that are hanging them up.
The more I think about this episode,
I'm telling you guys to keep all of this stuff jointly,
but then again, you know, probably not.
I guess that is true to some degree on this,
but I think what it is,
is you need to be looking at this stuff.
Because for some of you, it might be a no-brainer.
You guys are gonna be joint,
you guys are gonna be tense and comment on all of this
because you truly share in all these adventures,
you share in all these different business ventures,
and it just makes sense.
You could be on the exact flip side of this.
You could say, hey, my wife has nothing to do with this,
I don't want them to have anything to do with it,
and I'm gonna keep them as such.
Also, if you have $50,000 to your name,
it probably doesn't make much of a difference,
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There is some other things to worry about
and let's kind of talk about the downside.
Why would you say, hunt, I would have no qualms
about putting my spouse on a brokerage account
that you own jointly
and why would you give pause on doing that same thing
for an auto repair shop?
If I have an auto repair shop that's worth $300,000
and I have a brokerage account that's worth $300,000,
which one do you think has more liability?
Which one do you think that I can get sued from?
Which one do you think that has any liability with sales tax
that could possibly go to jail if I don't pay sales tax?
Which one has liability that if one of my employees
forget something on a vehicle,
I could actually end up financially responsible or in jail?
I think that you understand where we're going on this one
and this is the big reason
why I generally don't see spouses on there.
For every time that I've probably seen a situation
where having the spouse benefit
by being in a state tax situation,
I've seen someone else that would have not been able to do
what they were able to do by having their spouse on there.
Realistically, most of you guys do not plan
to keep your shops until after you pass,
it's gonna be a sale before death
or hopefully before death on there
and by having your spouse on there,
they are now liable for most of the things that you do.
But I'll give you a great example on this.
If you go out and you are the sole proprietor
of your business and you rack up a $400,000 liability
to the IRS, payroll taxes specifically,
and we'll use sales tax is kind of interchangeable as well.
If your spouse doesn't work in the business,
your spouse doesn't own anything on it,
you absolutely could be liable
and you absolutely could be going to jail,
but there is no legal standing for the IRS, the state,
or the county to go after your spouse.
She doesn't own the business,
she's not on any legal paperwork.
You thought that you were being nice
and when you started this business,
you said, hey, everything's 50-50.
Still the same situation,
wife has never been in the business,
wife doesn't do the sales tax,
wife doesn't do the payroll tax.
If they see your owners are 50% owner,
not that they're always going to go after them,
but they now have the same legal standing
to go after her as they do for you.
What's the benefit of it?
What's the benefit of having your spouse on there?
Absolutely not in most situations
because remember, you guys file a joint return.
If I make $100,000 in my business,
I'm going to show $100,000 on my tax return.
If that same business has owned jointly
with me and my wife,
I'm still going to be paying tax on $100,000.
50 is going to become for me, 50 is coming from her.
It really makes absolutely no difference.
And again, like I said,
could open us up for some liability.
What if you've made this mistake in the past?
What if you said, well, hunt, you know what?
I had an ex-husband, a current husband,
whatever it is, and I actually got,
you know, mixed up in a tax situation.
They fraudulently filed return.
They forgot to include their ERTC money.
And now the IRS is trying to come after me.
The good news is in most situations,
the IRS has a situation to deal with it.
I'm not going to tell you it's always a good situation.
I'm not going to tell you it's always an easy situation,
but pretty much anything that you can name
that has possibly happened as far as tax is concerned,
the IRS does have guidance on this.
There is something that I have seen.
I've never actually seen it done in person.
I've heard about it, but it's called an innocent spouse.
What is an innocent spouse?
And can this help me in a situation
where my spouse does something that I could be liable?
And the good news is, yes, if you're liable for,
if you're concerned about the liability for taxes,
the bad side is no, if you're liable for anything else.
Innocent spouse just means that,
that the spouse is innocent
from whatever tax related thing that the spouse did.
Like I said, I have never seen this actually used
in person.
I've never filed this for a client.
I've luckily, knock on wood, never been in a situation.
I usually see this stuff
when someone commits some sort of fraud.
When someone has a massive audit,
when there's a mass underreporting of tax liability
or income on this,
and the IRS comes back and says, you know,
John and Jane Smith,
you guys underreported $3 million
and either John or Jane comes back and says,
I did not underreport anything on this,
my spouse did.
It does happen.
There is ways to kind of get out of tax debt
if your spouse is into trouble.
But as we'll talk about a little bit,
if you have some of these things going on,
you might not want to file to jointly anyways.
Something that it is more common, and again,
you know, if you are filing taxes,
if you're being married, you know,
some people have tax liability
that either predates your marriage
or even predates any marriages altogether.
This one's a little bit more common
and it's called an injured spouse relief.
The injured spouse relief,
not to be confused with the innocent spouse relief,
has to do when someone has a previous year tax liability
that has nothing to do with your joint account.
So let's say that I am single,
I owe the IRS $50,000,
and this year I want to file a tax return with my new wife,
but I don't want that person
to have any negative impact on my previous year's taxes.
My new wife could file something called
injured spouse relief,
which essentially says we are filing this stuff together,
here's my side, here's my spouse's side,
I have nothing to do with them.
That kind of leads us to the last question on here,
is should I just file a separate return for my spouse?
We've went full circle on this.
We've went from the estate tax planning of like,
it doesn't matter, we all own everything on this,
to a lot of people are probably coming
to the conclusion of like,
wait, should we be held jointly on any of this stuff?
And a short answer on this
is should you file separately from your spouse?
It's probably not.
There is some situations.
If your spouse has a big tax liability from previous years,
I would probably think about it.
If your spouse currently has a massive tax liability
every single year and has issues paying it,
notices, whatnot, I would seriously think about it.
Anything else in between other than the son,
I would not use that as a reason to file separately.
The reason why I would almost
never recommend filing separately
when you have a married couple
is there's virtually no way that it could benefit you
other than these situations we're talking about here before.
And there's a lot of ways that actually could be a negative
for you or your taxes.
There's a lot of things the way the tax law works is
the tax rates for more the tax brackets for joint
are essentially double what they are single.
You got one person here, you got two people there,
it's all doubled.
Deductions are generally the same way too.
Hey, if you get $1,000 on your personal,
if you file a jointly, you get $2,000.
The issue comes up on the married filing separately.
There's a couple of things that you just can't get
if you file separately.
You want to deduct student loan interest.
Well, if you file separately, you just can't.
So like I said, you should probably be filing jointly.
Your spouse should probably not be on the business,
but the longer answer is it's probably gonna make
a big difference depending on what you have going on,
what you've done in the past
of what you plan to do in the future.
And like a lot of this,
how much money is all involved in a lot of it.
So, huh, I might or might not want my spouse on the business.
I probably want them or tenants in common
on some of the real estate, the bank accounts.
If my spouse owes a bunch of money
or is about to owe a munchie to the IRS,
I probably should not file jointly.
What about paying them?
Is the relationship between paying your spouse
and them being an ownership in the business,
do they actually have anything to do with each other
and does it all even matter?
So kind of like filing separately,
if you're sitting here right now working in your repair shop,
working in your business on it
and your spouse does not currently take payroll
and you say, hunt, should my spouse take payroll
without looking at anything that's,
answer is probably no.
And then again, a 90% of the situations,
the more I ask, I do not change my answer.
10% of those I say, yeah,
you probably should have your spouse on payroll.
The biggest reason why you should not have
your spouse on payroll is because
there's probably no benefit.
If your spouse is not on payroll,
they can still be covered under your
health insurance benefits
because they're your spouse on there.
We're not getting a tax deduction when we pay our spouses.
If we pay our spouse 100 grand,
we get a $100,000 deduction on the business,
we pay tax of 100 grand personally.
Those wash out, we get no tax deduction.
But you know what we don't get a deduction for?
The $15,000 in payroll tax
that we paid on that payroll.
If you have two businesses,
both of them making $200,000 a profit,
one of them takes 100 grand on payroll.
The other one, both spouses take 100 grand on payroll.
Business A is gonna pay $30,000 in payroll taxes.
Business B is only gonna pay $15,000.
The whole game here that we're trying to work with
is to pay the least amount of payroll taxes possible.
You guys know that you shouldn't be bonusing yourself,
paying yourself a ton of wages.
Why the heck you just paying your spouse?
That being said, if there's a reason
why your spouse has to be on there for health insurance,
obviously put them on there.
This is the asset versus liability cost versus benefit.
If you have a retirement account,
your spouse should be on there
and should be maximizing that.
In a perfect situation,
if I'm looking for most repair shops,
one owner, I don't care if it's you,
your spouse, husband, wife,
one of you guys should be on there.
Same person that's on there should be taking payroll,
should be filing a joint return,
but you should not become mingling this
as much as you can unless your lawyer says
there's a benefit from doing so.
I hope that this never comes down to it,
but the last kind of, you know,
well, why would I do all of this?
What is my option by keeping my wife,
my husband completely separate from my business?
I don't see this a lot.
It's not advisable on no one ever plans on doing this,
but I have had a handful of businesses
over the years that have got into sales tax trouble,
payroll tax trouble, income tax trouble.
What they are able to do by having
only one of their spouses on the business
is they were able to shut that business down
and then a new business was to reopen
sometimes the following day.
If you wanna look at XYZ auto repair
and some of my clients in the past,
they closed down on a Friday
where the husband owned that business.
They had a massive amount of payroll taxes
and then Monday they opened up as a brand new business
and they were not actually liable for those payroll taxes.
Is there more to this?
Yes.
Is the husband that walked away from those payroll taxes
or sales tax gonna still have some stuff that follows them?
Yes.
But if you do this correctly,
you could have one person on the hook
and still be able to be flexible,
still be able to do what you need to do in the business,
whereas if you guys might both end up going down
with the ship, if you really, really wanna have both
of your names on this.
Being married and having a business partner
in many ways pose similar issues,
disagreements and frustrations
and combining the two can make it even more daunting.
Talk to your spouse, talk to your accountant,
talk to your lawyer and make the right move
for you, your business and your family.
As always, please share with friends.
If you have any questions, comments or ideas,
shoot me an email at podcast.parmalus.com.
Just wanna say thanks again
for listening on the Aftermarket Radio Network.
You can find all shows
on the AftermarketRadioNetwork.com
and on your favorite podcast listing app.
So just wanna say thanks again
for joining me on a business by the numbers.
Stay safe out there and I'll talk to you all next week.
You've been listening to Business by the Numbers
with Hunt Demerist on the Aftermarket Radio Network.
Follow Hunt on your favorite podcast listening app.
Let him know what you'd like him to cover.
His email is in the show notes.
Hunt is all for advancing the Aftermarket.
About this episode
Exploring the complexities of involving spouses in business ownership and payroll, this episode dives into estate planning considerations and tax implications. Host Hunt Demarest shares personal insights from his own estate planning journey, emphasizing the importance of understanding asset ownership and liability. He discusses the pros and cons of having a spouse on payroll and the potential risks of joint ownership. With practical advice and real-world examples, listeners gain valuable knowledge on navigating these intricate financial decisions.
Original notes
Thanks to our partner Promotive
Being married while owning a business isn’t just about love and partnership—it’s about liability, taxes, estate planning, and protecting your family’s future. In this episode of Business By The Numbers, Hunt Demarest, CPA with Paarmelis & Associates, pulls back the curtain on one of the most common yet misunderstood questions business owners face: should your spouse be on the business, the payroll, or the tax return?
From his own estate planning experience at 37 to the real-world pitfalls he’s seen in auto repair shops across the country, Hunt shares what every entrepreneur needs to know before signing their spouse onto ownership or payroll. This episode covers everything from joint tax filing risks to payroll tax traps—and even the little-known IRS relief provisions like innocent spouse and injured spouse rules.
What You’ll Learn:
(00:40) Estate planning and why spousal ownership matters
- Why estate planning is crucial at any age (yes, even in your 30s).
- The difference between assets and liabilities when transferring ownership.
- Why lawyers and accountants often approach planning differently.
- The hidden costs of joint ownership in businesses vs. brokerage accounts.
(05:56) Spouses, liability, and your business
- Why putting your spouse on the business could expose them to payroll and sales tax liability.
- The dangers of “splitting ownership” just to be fair.
- Why estate tax benefits often don’t outweigh liability risks.
- A real-world example of how the IRS can pursue both spouses if one is on the books.
(12:00) Innocent spouse vs. injured spouse: IRS relief explained
- The difference between innocent spouse relief and injured spouse relief.
- When each applies—and why you hope you’ll never need them.
- Why filing separately almost never makes sense (and when it might).
(16:18) Payroll, joint filing, and the “nuclear option”
- Why paying your spouse rarely saves taxes—and can cost thousands in payroll tax.
- When it does make sense to put your spouse on payroll (hint: retirement accounts, health insurance).
- Why joint filing almost always beats separate returns.
- The rare scenarios where keeping your spouse off the business can protect your family
Hunt wraps up with a reminder: marriage and business both require careful planning. Talk to your spouse, your lawyer, and your accountant before making big ownership or payroll decisions—because the wrong choice could cost far more than you think.
Thanks to our partner Promotive
It’s time to hire a superstar for your business; what a grind you have in front of you. Introducing Promotive, a full-service staffing solution for your shop. Promotive has over 40 years of recruiting and automotive experience. If you need qualified technicians and service advisors and want to offload the heavy lifting, visit www.gopromotive.com.
Paar Melis and Associates – Accountants Specializing in Automotive Repair
Visit us Online: www.paarmelis.com
Email Hunt: [email protected]
Text Paar Melis @ 301-307-5413
Download a Copy of My Books Here:
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