Skip to content

THE ACCOUNTANT'S CORNER

November 4, 2019

Reduce your taxes by making your spouse your business partner!

Written by, Robert Clark
business partners

Strategy Overview

It works like this:

  • You own an existing sole proprietorship or want to start a new business.
  • You and your spouse form a general partnership or limited liability company to manage the business.
  • You and your spouse provide cash or property for your interests in the new business.
  • Your spouse does not participate in any way in the He or she is merely an investor.

Here are the tax benefits to you

  • Your spouse's income is not subject to Self-Employment Tax.
  • Both of you qualify for the new pass-through income deduction under Section 199A.
  • Your IRS Audit Risk is lowered because neither of you are a Sole Proprietor.
  • You don't have to worry about the hassle of payroll like an S Corp has to.

Here are the potential issues

  • The passive activity rules limit your spouse's use of any losses against regular income.
  • You now have a Partnership Tax Return to file, but you would have an additional tax return to file if you formed an S Corp.

No Self-Employment Tax?

Limited partners in a partnership don’t pay self-employment taxes on their share of partnership net income.

To make your limited-partner situation crystal clear to the IRS, make sure your spouse meets the limited-partner requirements by

  • providing no services to the partnership,
  • complying with the limited partnership statute of your state, and
  • signing a document delegating management authority of the LLC to you.

Don't provide any services to the company, enter into any contracts for the company or allow the company to use your credit card.

Have more questions about Roth IRAs? Contact our offices by calling 1-305-363-5429 or by emailing me at robert@robertclark-cpa.com. You can also reach our experts via an easy-to-use online form.

Schedule an Appointment