SE Tax and Partnerships

Hi,

My husband currently receives a 1099 & is self-employed as a territorial sales rep.

He pays alot on self-employment [SE] tax. We are thinking about opening up a retail store in which we would be partners in an LLC.

Does The Small Business and Work Opportunity Tax Act of 2007 mean that we would not need to file for SE tax on this small business? If I am understanding it incorrectly & we still do need to file SE tax, is there some way we can combine his territorial sales rep work in which he already pays SE tax with the small retail business, so that we are not paying SE tax on two related businesses?


Also, does the Small Business and Work Opportunity Tax Act of 2007 eliminate the double taxation that occurs with husband & wife partnership llc's?

Thanks, Eileen


Hello Eileen,


Wow! You are mixing up apples, potatoes and Fruit Loops.

First of all, there is nothing in the Small Business and Work Opportunity Tax Act of 2007 that eliminates SE tax. To make sure there was no hidden paragraph that I missed I called the IRS to confirm. If you found something that says it's been eliminated, please send it to me.

Second: There is not now nor was there ever a double taxation of SE tax. Read What is Self-employment (SE) Tax? on this blog.

In a partnership SE tax is paid on the net profit. For instance, if you and a friend were 50/50 partners then each of you would pay SE tax on half the profit. A husband and wife partnership would also split the profit and pay SE tax on his and her share.

By the way, a partnership is the least tax advantageous business structure for a husband and wife business. A better way: One spouse as owner, the other as an employee.

Best,
June