Great Tax Strategy to Employ with Your Wife

September 3rd, 2019 at 9:34 AM

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).

Mark S. Fineberg, CPA