June 3, 2018

Should I Make My Spouse A Partner?

Should I Make My Spouse A Partner?

Tax reform changed the rules of the game when choosing your best tax structure.

In looking over the possibilities, we note that a properly structured spousal partnership could be your best choice.

Here are the tax benefits to you:

  • Your spouse’s income is free from self-employment tax.  
  • You and your spouse both still qualify for the new pass-through income deduction under Section 199A.  
  • The IRS audits partnerships at a much lower rate than proprietorships (Schedule Cs).  
  • You don’t have to worry about the costs or hassle of running payroll or determining your reasonable compensation as you would if you operated the business as an S corporation.

Here are the potential issues:

  • The passive activity rules limit your spouse’s use of any losses against regular income.  
  • Your cost of preparing a partnership return (but you’d have this cost with an S corporation too).

If you would like to discuss how your choice of business entity works in today’s tax environment, please don’t hesitate to call me on my direct line at 973-339-7773.

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