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Article Date:
September 2007

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New Law Requires a Tax Plan for Husband-and-Wife Proprietorships, LLCs, and Partnerships

Illustrates $9,800 in self-employment tax savings


The latest Iraq war funding law contains a new tax law section on “family business tax simplification” that allows a husband-and-wife-operated business to divide that business between husband and wife and report their respective interests as individual businesses.1 BEWARE. If you and your spouse work together in the business, it is time to pay attention and examine this new law.


Revenue ruling 58-243 states that you and your spouse can be considered a partnership for federal tax purposes even if state law prohibits such a partnership. Similarly, you and your spouse can have a tax partnership when state law prohibits a nonprofessional from being a partner (like the non-CPA who was deemed by the IRS in revenue ruling 77-332 to be a partner in a CPA practice).


As we said in the first paragraph, it is time to pay attention. For tax purposes:



The non–medical doctor spouse and the medical doctor can be in partnership.


The non-dentist spouse and the dentist can be in partnership.


The non-CPA spouse and the CPA can be in partnership.


The non-salesperson spouse and the salesperson can be in partnership.


The non–business-owner spouse and the business-owner can be in partnership.

The Joint Committee on Taxation says that this tax law change will neither add to nor subtract from the federal budget.2 Interesting! That means the new law will have winners and losers in roughly equal numbers.


The new law allows you and your spouse to treat a jointly operated business activity as a joint venture ... Log in to view full article.

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