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A Working Spouse Is It Worth It
By: Bill Young
If you are leaving the children in day care while your spouse or partner works because you need the money, stop, look and listen!
You know and I know that children with a parent at home do better in life.
Extra care and attention was never needed more by kids than today.
Now there is a way your spouse can stay at home with the kids, while the IRS will equal or better the income your spouse loses by not working!
How can that be? When you take a close look at the extra money brought in by your working partner, you will see you are getting the worst of both worlds.
They are not there with your child and they are not really making any money!
Joe and Mary have two children, ages 4 and 7. She works, making $8 per hour, for 35 hours or $480 per week, $2,064, month. After taxes, that will be about $1,375 month.
Is that all gravy? No, look at some of the costs involved with Mary going to work:
Child care-2 children $645 per month
Lunches and meals out $200 per month
Hair care and cosmetics $75 per month
Transportation $95 per month
Cell Phone $75 per month
Dry Cleaning/Laundry $45 per month
Net $240 per month
What is left? $240 per month? Less than $56 per week! Of course your figures will vary. The point is to do this analysis and really look at the net result. You may be surprised as Joe and Mary were.
After deducting the costs necessary to permit Mary to go to work, they are exactly $240 per month ahead of where they would be if she did not work. And the kids are in daycare.
Is there a better way? What if Joe started a home based business and hired Mary?
The benefits of starting and running a home based business are enormous. The only requirements for a qualifying business are that you "actively" pursue the business (devoting not less than 2 hours per day to it, according to the IRS) with the intent of making a profit.
If your home is the headquarters of such a business, you will be eligible to give yourself an Instant Pay Raise from your current, full time job of $200-$1,000 per month, starting with your next pay check, courtesy of the IRS!
By running a qualified business from your home, you will be able to deduct virtually all of the money you are now spending to support your family. You see, your family and a business have virtually the same expenses:
Rent or mortgage
Auto expenses
Travel-Entertainment
Retirement
Equipment and supplies
Medical expenses
Cleaning and repair
Education and training
Salaries.
See what I mean? By running these everyday expenses through your business, they can become tax deductible. I say can, because you have to have expert guidance to know which expenses can be written off, how to write them off properly and how to document them. This assistance comes from an accountant or financial expert.
Here is an example. You drive the family to the mall on Saturday. Deductible business expense? Hardly.
However, you stop at the UPS store in the mall and pick up mail for your business. Bingo! You have turned an ordinary trip to the mall with the family into a tax deductible business use of your car. The car deduction alone can be huge as the government lets you write off $445 per 1,000 miles driven on business!
How about writing off your vacation? Yup, if you do it right! The IRS says that if you spend more time on business than on pleasure, you can write off the weeklong trip to Orlando, Fl. for instance; despite the fact that you spent 3 days at Disney!
Ok, back to the original question. You can see that your spouse's working may be a losing proposition. If you hire her or him to do work in your home based business, the money you are now giving him or her every month becomes tax deductible salary!
Of course the job and the salary have to make sense. Your spouse must work at least 100 hours per year (IRS Regulation) and their pay must be comparable to industry levels for the same job.
Your spouse's salary is a tax deduction for your business. Your spouse is your employee. You put in a medical plan for all employees and their families that reimburses them for all medical expenses. That means medical insurance premiums, out of pocket co-payments as well as dental and other services that may not be covered by your medical plan will now be reimbursed by your business.
I don't know if you caught that one about the employee's family being covered by the medical reimbursement plan? That means you, bunky! You are your spouse's family, no?
The bottom line on all these expenses is that the business will probably show a loss at the end of the year. This loss can then be written off your regular job income, drastically reducing it. This also drastically reduces the income tax you owe.
Instead of letting the government hold your big fat tax refund until next year, you increase the number of withholding allowances on your W-4 the first thing tomorrow morning when you get to work. You will then receive next year's refund this year, a portion with every pay check.
This is your Instant Pay Raise from the IRS! At $200-$1,000 per month it will probably be as much or more than Mary's $240 net from her job! And the fact that she is home with the kids? Priceless!
Copyright 2006 Bill Young. Bill is a Financial Personal Trainer. He teaches the Laws of Wealth to individuals and groups so that they can Quit the Rat Race in a few short years. He did it in 5! For more information: http://HowtoSolveYourMoneyProblems.Com |  |
