There is a lot of hiring going on in the small business world! The good news: the economy looks like it will remain strong and a lot of businesses will add even more people to their payrolls. The bad news: too many employers don't have a good grasp of some basic requirements, like how to avail themselves of the benefits derived from state and federal regulations.

    Now we're talking small business in this instance…sole proprietorships. This has nothing to do with corporations or partnerships of any kind, size or description. Furthermore, we are going to limit this discussion to those of us who are operating offices in our homes. For the most part, we are a one-person operation. We do the support tasks…filing, post office runs, copying, etc., as well as handling the main service of the enterprise.

    Of course, there is often assistance provided by our spouse for many if not all the extra chores. Very often, this is done gratis…heck, there isn't enough money there to really pay them…or is there? Robert Greene thinks so!

    Greene is a CPA in Dutchess County, NY. Scattered throughout the tax code so widely that it took him years to find them are obscure loopholes that allow self-employed business owners tax deductions that can add up to as much as $25,000 annually. Could it work for you?

    In a 1994 private letter ruling, the IRS allowed a self-employed professional to hire his/her spouse as an employee and provide medical insurance to the spouse and the spouse's dependents as an employee benefit, 100% tax deductible and at no tax cost to the employee/spouse.

ONE SIGNIFICANT REQUIREMENT:

    A contract between employer and employee/spouse must be in place beforehand to document and define the employer's contractual obligations and the employee's job responsibilities.

    Medical benefits are just the start according to Greene. Several years ago, he began searching for additional tax advantages for using a formal spousal employee contract. What he found saves his own home-based accounting practice about $5,000 in taxes annually. However, this is not a tax do-it-yourself program.

    "You can't just put your spouse on the books and start writing everything off," says Greene, "but with a contract that meets specific IRS guidelines, you can start adding up the benefits for your business." Greene's Spouse Employment Contract (SEC) has specific benefits in 16 different categories. It took several years to finalize the contract, bringing together many technical points scattered throughout the United States Tax Codes.

    The contract is rigorously kept up-to-date as tax law changes. Many have saved thousands over the years with no attention from the IRS because his SEC is 100% according to code. In fact, every paragraph in the contract is carefully referenced to the specific section of the tax code it relates to.

    The contract documents the relationship, responsibilities, compensation and extensive employee benefits. Without a contract between the employer and employee/spouse, this kind of arrangement isn't acceptable to the IRS and won't work. But with it, the tax savings can be impressive.

    Here are some of the deductions, across the board, made possible with such a contract.

MEDICAL COSTS:

    "Medical insurance can be worth about $6,000 annually, but that wouldn't include the value of all other medical costs for an employee and dependants," says Greene, who offers his employee and her dependents both medical insurance AND non-covered medical costs as health care benefits. That means all eye care and products, all dental care and products, mental healthcare costs, chiropractic, even holistic or alternative medical treatments and more.

ON-PREMISES FACILITIES:

    Big companies have on-site athletic facilities for employees…and they are just as valuable for small companies too. This can run the gauntlet from large items like exercise equipment or a swimming pool to the smaller ones like a bat and a glove.

HOME SECURITY SYSTEMS:

    Almost every home business has an electronic security system, but most owners only prorate the standard 10%. This is technically correct, but only covers a small fraction. A business with a contract between the employer and the employee/spouse can have the business pay for the entire home security system… installation, maintenance, service, etc…as an employee benefit….and is allowed to write off 100% of the cost.

FOOD:

    Coffee, juices, snacks and other food items that an office might typically offer to employees. Buy these items for your spousal employment contract employee, and it's a fringe benefit: deductible for the business and this cuts grocery bills

OCCASIONAL SUPPER MONEY:

    This can be reimbursed or provided in kind for the contracted employee/spouse to enable him/her to work overtime. Remember, this is NOT entertainment, which is only 50% tax deductible, but an employee fringe benefit…100% deductible.

OCCASIONAL ENTERTAINMENT:

    Tickets to theater, sporting events, comedy clubs and concerts are a fringe benefit, just as an employer in a big firm would buy season tickets and give them to employees as a special thank you for a job well done. That usually includes transportation and dinner.

HOLIDAY AND BIRTHDAY GIFTS AND PARTIES:

Traditional holiday gifts of property with a low fair market value are fair game for spousal employment contract employee fringe benefits. But it's not just the Thanksgiving turkey either. No one can tell you what holidays your office can celebrate. Every month contains at least two holidays, and in addition, every employee has a birthday. Birthday gifts are fully tax deductible, whatever the gift may be.

    "Spousal salaries tend to be on the low side, so you'd expect nice gifts or benefits from your employer," says Greene. "Once it's set up, using the Spousal Employment Contract lets you take advantage of legitimate tax laws to save thousands of dollars without working harder or selling more."

    What do other experts in the field recommend?

    Norm Ray, a CPA from Windsor, California and author of SMART TAX WRITE OFFS, has not gone to the extent that Greene has, yet he does touch on the subject of employing a spouse.

    In a section titled "Spouse Employee," Ray states: "If your spouse participates in your business, put him or her to work on your business' payroll with part of the compensation package providing medical expense reimbursement. Then buy insurance to cover medical bills, or self-insure (i.e., your business pays the medical bills). Or do a combination, buying insurance with a very high deductible that will result in a lower insurance premium because your business is self-insuring the amount of the high deductible.

    "The IRS allows a self-employed person to deduct a relatively small percentage (30% in recent years) of amounts paid for health insurance for self-employed persons. But here's a way to make your personal health insurance premium 100% deductible. Your business can enroll your employee-spouse as an insured employee in your business' health insurance plan. The insurance premium for this employee is fully deductible. And you can then be covered in the plan as his or her spouse."

    Many books and publications touch on the idea of spousal hiring, however, as far as can be determined at this writing, only Greene has researched and gone into as much detail to provide many of the deductions sought after.

    Greene's SEC is available for $997. Although this may seem a bit exorbitant, he stresses that not only is the contract fee tax-deductible, it would more than pay for itself in the first 3 months.

    If your home business is suffering from growing pains and you need help but think you can't afford it…maybe you should look no further than the person you share your newspaper with for an affordable solution to manpower.