Article Date:
April 2020

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Husband-Wife Partnerships: Three Tax-Saving Strategies—Part 2

In Husband-Wife Partnerships: The Tax Angles—Part 1, we covered the basic tax angles affecting unincorporated husband-wife businesses that are classified as partnerships for federal tax purposes.


This article is devoted mainly to three tax strategies to reduce the brutal self-employment tax hit on a profitable husband-wife business that is currently operating as a partnership. If that is your situation, keep reading.


First, a look at the basics.


Husband-Wife Partnership Basics


Say you currently operate an unincorporated husband-wife business that is classified as a partnership for federal tax purposes.


You must file an annual Form 1065 (U.S. Return of Partnership Income) for the business.


You and your spouse each must be issued separate Schedules K-1 from the partnership. The Schedules K-1 allocate the partnership’s annual taxable income items, deductions, and credits between the two of you.


You then file your joint Form 1040 by combining the Schedule K-1 amounts for you and your spouse and mixing in non-business tax items (itemized deductions, personal tax credits, and so forth). No worries so far!


Note. Your husband-wife partnership may come from your husband-wife LLC that is treated as a partnership for federal tax purposes.


The Self-Employment Tax Problem


The self-employment tax is the government’s way of collecting Social Security and Medicare taxes from self-employed individuals, including spousal partners in husband-wife partnerships.


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