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better way to go tax wise sole proprietor or partnership with wife?

by wsulli, Window Shopper

  • Created: December 21, 2009, 9:04 pm
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9 comments

I have a small business llc partnered with my wife, I was told a sole prop. was better from a tax point of view. I do all the outside work while she handles billing and office stuff.Any suggestions 

Tags: Discuss Popular Topics, Filing and Paying Taxes
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Mcmillan211 | Window Shopper | 11/19/2010 - 3:31 am

Starting a homebased business with your spouse can be a great way to combine your family and business activities under one roof. But it takes some advance planning and a great deal of trust and communication to make it work. If your partnership turns into a power struggle, you can put both your business and marriage at risk. But if neither one of you wants to step up and take charge, your hard-earned business may turn into a money-losing hobby
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NicoleD | Former Moderator | 10/27/2010 - 10:24 am

Thank you for your responses. Wsulli, we hope you found your answer. Please keep us posted.

jbeidle | Contributor | 10/26/2010 - 8:32 am

A greater than 2% partner or his/her spouse and family are excluded from employee benefit plans ie health insurance and medical expenses. That could be awfully expensive year after year after year.
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bopster | Window Shopper | 10/26/2010 - 5:45 am

There really should be no difference in the two as these type entities are taxed the same unless you are not filing taxes jointly. The other consideration is do you want both of you to be owners from a liability standpoint. If you are starting a business that will incur debt and one day something happens (sorry to be a pessimist), if you are both owners then both of you are at risk of taking a hit to your credit. Just something to consider. Good luck. ---This post was edited to remove a commercial link. Read our discussion policies for more Community best practices.

Coffey | Window Shopper | 10/22/2010 - 12:20 am

For couples that do brave this dangerous territory, working too much is one of the many challenges they will face. The stresses of running a company together can shake the foundations of even the strongest unions. Get it right, though, and the combo can pay off big--both for the company and for the marriage. The commitment to each other produces a synergy that can enhance the business
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Levy | Window Shopper | 10/11/2010 - 5:05 am

Sole proprietorships can be the easiest and cheapest form of doing business, but things can get complicated if your spouse starts helping out.  Sole proprietorships, by definition, can only be run by one person, so if you plan on having your spouse help out, here are some important things to consider.  
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jbeidle | Contributor | 12/31/2009 - 2:33 pm

I can not think of any advantages to electing to be taxed as a partnership with your wife but there are disavantages you will be excluding yourselves from if you do.

ChristineL | Former Moderator | 12/22/2009 - 10:31 am

Hi wsulli, We wrote a blog on Starting a Business With Your Spouse that may be helpful to you. Does anyone have experience with structuring their business with their spouse? Feel free to add!

BizResearcher | Window Shopper | 12/22/2009 - 12:02 pm

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Hi wsulli, We wrote a blog on Starting a Business With Your Spouse that may be helpful to you. Does anyone have experience with structuring their business with their spouse? Feel free to add!
I would remain an LLC. If you are a sole proprietor, the debts of the business become your debts and the income of the business is your income for tax purposes. Should a problem occur with the business that you cannot financially handle, you would be personally liable. An LLC is a separate legal entity. The debts of the business remain separate from your personal debts unless you personally guarantee them. If you set the business up as an LLC partnership, there would be more tax consequences since you and your wife would both need to report partnership income. You should be able to change to just an LLC. That way, if your taxes are fairly simple, you can choose to report them using a Schedule C with your personal taxes, just like a sole proprietor.