It is almost impossible for small business owners to separate the business from personal life. You can cope with the sometimes unwanted commingling by learning how others approach this topic. Let's start with the positives - tax benefits.

Hiring your spouse can save you some taxes. If you are a sole proprietor, a spousal employment agreement can allow you to deduct 100% of medical insurance premiums, instead of getting only 45% off income taxes and nothing off self-employment taxes. Child care credits may become available via spousal employment in some cases that might not otherwise be available. Talk to your tax advisor about all the fringe benefits possible by hiring your spouse. If you are a corporation, you can deduct your vice president / spouse's travel expenses on business trips.

Sole proprietors also have a unique relationship with their minor kids. You can hire your kids under age 18 and pay no payroll taxes. If you keep their wages low enough, they will pay no income taxes, and you can still claim them on your return. In addition, they may qualify under some fringe benefits plans. You must file the quarterly form 941 with the IRS and the annual W-2 wage statements with Social Security, and must actually write out checks to pay the kids. The kids must also perform services for the business. Not only are your own kids exempt from the payroll taxes, but also from child labor laws. Note that this benefit is NOT available to kids who work for their parents' corporation or partnership.