A. Marital dominance issues aside, the obvious reason why putting your wife in your payroll is a good thing in that the salary that your wife gets as an employee can be deducted as a business expense. This is advantageous for your business since the salary she will receive will be an item that could reduce the taxable income of your business.
However, since your wife will now be considered as a compensation earner in relation to your business, her salary is generally taxable income. As such, she is entitled to the P32,000 personal exemption and has the option to claim the additional exemption of P8,000 for each dependent. Note that only one of you is allowed to claim the additional exemption. Not both!
The disadvantage here is that you, as your wife’s employer, will be required to withhold a portion of her salary and remit such amount to the Bureau of Internal Revenue. Unless you can get your in-laws to do it, for your business, this means paper work (maintaining books of accounts, accomplishing and filing forms, remitting taxes to the tax authorities and so on).
Remember, however, that the salary of your wife should be necessary and ordinary to your business. It should be reasonable in amount and should not be excessive. Therefore, don’t get too cute by declaring your wife’s salary at an outrageously larger amount than your business’ gross income.
(Raymund S. Gallardo is tax partner of Laya Mananghaya & Co./KPMG. Questions and comments are welcome. Messages to the author can be sent by e-mail at manila@kpmg.com.ph).