Sixty-three percent of Overdrive readers receive management help from their spouses or significant others.
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Most owner-operators have a spouse or girlfriend helping run the business. The status you give your co-worker has tax implications, some of which you might never have considered.
Here are three ways to handle it.
DO NOTHING. For the least hassle, let a helper be a volunteer. No payroll, no taxes, no tracking of hours. If the co-worker is married to you or has another job, especially with a company providing a full menu of benefits, there’s often no reason to bring her into the owner-operator business.
The downside: If the home-based helper is not married and is otherwise unemployed, therefore paying no Social Security tax, there could be serious risk, says Gary Aitken, a trucking accountant in Indianapolis since 1968.
“I’ve seen a couple of situations where individuals have become disabled one way or the other, and they have no benefits, no insurance,” Aitken says. “If they had Social Security coverage, that might be an avenue they could pursue.”
EMPLOY THE CO-WORKER. For a non-married helper, employment would mean not only Social Security benefits but also other tax advantages. “Sometimes independent owner-operators have a girlfriend at home that they claim as a dependent, but because the girlfriend doesn’t have income, collectively they lose the benefit of her standard deduction,” Aitken says. “If he pays her money for doing paperwork, etc., then she could file a return and claim herself – that is, claim the standard deduction as well as the personal exemption.”
Some owner-operators have decided to employ a spouse for health insurance reasons. “A condition of her employment is that he provides her with insurance, but her insurance also covers him,” Aitken says. The advantage vs. the owner-operator getting the policy for himself is that he can deduct the insurance as a business expense when he provides it for an employee.
MAKE HER A LEGAL BUSINESS PARTNER. If you are married, there’s no need to make the stay-at-home spouse a business partner because you already file a joint income tax return, Aitken says. “If they’re both materially participating in the business, then they can split the income, even though it’s on one Schedule C,” he says. Both spouses pay Social Security tax on that income, so both will qualify for Social Security benefits.
For unmarried helpers, only in the unlikely event that both are responsible for truck payments would there be a good reason to form a partnership. Otherwise, for reasons stated above, it makes sense to employ the unmarried working helper.
If you’re not sure about the smartest tax moves regarding someone who helps your operation, consult an experienced trucking accountant who understands your circumstances.