Are you searching for a way to lower your taxes for 2018 and beyond? If you are married, you might be able to create a partnership with your spouse to put more money in your pocket instead of Uncle Sam’s pockets. Don’t worry if you and your spouse do not work well together because your spouse can be more of a silent investor than a participating partner.
When considering any tax planning strategy, I encourage you to discuss your plans with a Maryland tax attorney. The information below is just a brief summary of how this strategy might work. Since each couple and business is unique, there could be some disadvantages that make this tax planning strategy ill-advised in your situation.
Creating Your Spousal Partnership
The steps for creating a spousal partnership are fairly straightforward. If you currently own your own business as a sole proprietorship or you want to begin a new business, you create a limited liability company or a general partnership with your spouse. The LLC or the partnership will manage your business. Then, both you and your spouse invest cash or property in the business for your interests in the business.
Now you are ready to operate the business. Your spouse does not need to do anything because it is your business. You continue to operate the business as you did before creating the spousal partnership. Your spouse is simply an investor or limited partner in the business.
Potential Benefits vs. Potential Problems With Spousal Business Partnerships
The tax benefits that you can enjoy with a spousal partnership can be very profitable. Your spouse does not pay any self-employment tax on his or her income as long as your spouse meets the qualifications of a limited partner. It is very important to consult with your Maryland tax attorney to ensure your spouse is truly a limited partner according to the IRS guidelines. Also, you both qualify for the Section 199A pass-through income deduction under the TCJA.
In addition to the tax benefits, you do not have the payroll or compensation concerns you would have if you had used an S Corp for your business entity. In addition, the IRS usually audits partnerships less frequently than it audits Schedule C sole proprietorships.
Of course, there are always a few potential problems with any tax planning strategy. You will incur a cost for preparing and filing a partnership tax return, but this cost would apply to any business entity you create that had to file a tax return. In addition, your spouse cannot use passive losses to offset his or her regular income. You can only use passive losses to offset passive income.
Get Trusted Advice From A Maryland Tax Attorney
In many cases, this tax planning strategy works well for couples. However, you should consult a Maryland tax attorney before proceeding to ensure that there is nothing unique about your situation that could create potential risks or issues.
If you are interested in pursuing a spousal partnership as a tax planning strategy, contact Thienel Law today for assistance with maximizing your tax deductions and savings. Maryland tax attorney Steve Thienel is dedicated to assisting clients in Maryland, Virginia, and throughout the DC Metro area.