Tax reform changed the rules of the game when choosing your best tax structure. In looking over the possibilities, 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.
• You have the 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 contact us.