Husband-Wife Business? Don't set it up as a partnership.

June,

I am preparing to take the plunge into SE and your book Self-employed Tax Solutions book has been an excellent resource.

Due to the work I do and subsequent contractual liability concerns, it was in my best interest to form an LLC, which I did as a single member.

My spouse will work in this venture in a part-time/full time business management capacity while I provide billable consulting services.

Are we better off with my spouse as a member, thus a partnership LLC, or as an employee in a single member (sole proprietor) LLC? I want the maximum liability protection, and equal "ownership" but do not want to give Uncle Sugar anymore than I absolutely have to. Since we file jointly, I'm thinking the tax advantage lies with the sole proprietor option but need your advice.

Thank you in advance.

Dean from Fort Collins, CO


Hello Dean,

Very smart move -- getting information before you make a decision!

An LLC treated as a "disregarded entity" is a sole proprietorship.

The most tax advantageous business structure for a husband-wife business is that which has one spouse as the sole proprietor and the other spouse as an employee of the sole proprietorship.

The least tax advantageous is a husband-wife partnership.

For an understanding of the advantages read my posts in the category payroll -- spouse as employee.

Glad my book is a good reference for you. Please tell your indie friends and colleagues!

Best,
June