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First I need to know if this is a registered Partnership, or if you were just going to file 2 Schedule C's (Sole proprietor)
Hi I see you stepped in
Can you please tell me if this is a registered Partnership?
It is a registered LLC.
Supposed to file 1065.
ok........what entity is it registered as? An LLC can be anything from Sole Proprietor to Partnership
ok........you're a partnership
Do you want to know the easiest way to do this?
The best way to be compliant and legally minimize taxes.
Ok......you have 2 choices. The easiest one is to cancel the EIN# XXXXX the IRS (and cancel the Partnership at the same time by telling the IRS that this is no longer a partnership)
Election for Husband and Wife Unincorporated Businesses
The IRS ruled a few years back that husband/wife businesses do NOT have to be a Partnership, that they could each claim their portion of income/expenses
This removes your wife from having to report 40% of the income and pay SE tax
You also don't have to file a separate return. You would only need to file Form 1040 (Schedule C)
which is part of your Federal tax return
If you decide to leave this as a Partnership, then you will file a Partnership return (The form 1065 you mentioned) and you and your wife will get a K1 showing your share of income/expenses based on the 60/40 split
Since you are doing the work, you must be a General Partner, which means that you will have to pay SE tax on your 60%
Your wife could be a Limited Partner (meaning she invests in the company but does not work for it, and she will not need to file any SE tax)
You would have to keep track of the $ your wife puts into the company (if she purchases supplies, gave start up money, etc)
You have to keep track of how much money Limited Partners put into a company because they can never take more of a loss than what they invested (or paid tax on in the years the company makes a profit)
If it were me, I would use the election for husbands/wives each filing a Schedule C
However, you would have to let the IRS know that the Partnership is canceled, or else they will be looking for a Form 1065 for you.
This makes your book keeping much more simple, and who ever earns the money pays on the money.
However, either way is "politically" correct
I got the message you were typing, but nothing appeared on my end.
Did you have a comment or question?
Ok. Thanks for the detailed response and links. I understand the 2 choices.
Do draws from the company have to be in proportion to the 60/40 split?
From the partnership? No, but unless you are reimbursing someone for a company expense, the draw is considered to be income
Ok. I think that answers my questions. Thanks for all the help and recommendation!
You're most welcome
Please come back here if you have any follow up questions
Ok. This was my first time using this. I appreciate you making it a pleasant experience.
I'm glad it was a pleasant experience. It helps when the customer is as informed as you are
You may come back even after you rate and pay if you have follow up questions.
Thanks so much!
You're most welcome. Thank you very much for requesting me!