Tax Tips + Taxes For Married Business Partners [Tax Related Services, Fremont Ca]

Google+ Pinterest LinkedIn Tumblr +

If you are planning to make your spouse an official partner in your business, you must first understand tax returns for partnerships Hayward/Fremont work. You must also make provisions for unexpected events like a divorce, misunderstanding or a business split in future.
Before you legally launch and announce your “joint venture”, here are few key points you should be aware of –
Self-Employment (SE) Income
Exorbitant amount of tax is imposed on small-sized joint ventures, started as a partnership between married couples.
You will be required to submit form 1065 (U.S. return of partnership income) to IRS every year indicating your income and expenses. You will both receive a separate schedule K-1 form that splits the business income and tax deductions between the partners. In addition to this, another form 1040 must be filed stating the amounts mentioned in schedule K-1. The total income generated from the business must be equally divided between both the partners and taxed accordingly.
Self-employment (SE) tax is imposed at the rate of 15.3% on an annual income of up to $106,800, and this tax is to be paid by both the partners. For gross income exceeding $106,800, an additional income tax of 2.9% is levied on the surplus amount.
You must remember that self-employment (SE) income tax returns for Partnerships Hayward / Fremont are exclusive of Federal and State taxes, which need to be paid separately.
Clearly the tax burden on small-businesses started as partnerships between married couples is quite high. Here are two alternative approaches you can adopt in order to minimize your Self-employment income tax burden –
Guaranteed Payment: Ventures started as a partnership between a husband and wife can be transformed into a Limited Liability Company or LLC by registering the partnership with the State Authority. Switching over to an LLC can offer many tax advantages. You both will be classified as limited partners and would then be eligible for guaranteed payments i.e. a fixed amount irrespective of the income generated from your business.
As a part of LLC Tax return preparation Hayward/Fremont, both schedule K 1 and joint form 1040 are to be filed but only the guaranteed amount is considered as income. The rest of the tax structure and tax rates remain the same. This can reduce the tax liability for a partnership firm by a significant margin.
Sole Proprietorship: In this approach, you switch from a joint partnership to a sole proprietorship, and the other partner is declared as an employee with a fixed salary. Employer can withhold 7.56% of the employee’s salary for Social Security and Medicare benefits. The proprietor would also need to contribute an equal amount, making it a total of 15.3%, equivalent to Self-employment (SE) tax.
Also, salary and other miscellaneous business expenses can be listed as deductibles. While filing tax returns as a proprietor, you will need to fill in a sole proprietorship Schedule C along with the regular income tax form 1040. By all means, this is one of the best plans for a partnership firm, as only one person would need to pay taxes at the rate of 15.3%.
If you too own or are planning to start a small business with your spouse, feel free to use the tax saving methods suggested in this article and enjoy maximum savings.


About Author

Leave A Reply