Spousal Partnership

Spousal Partnership

Tax reform changed the rules of the game when choosing your best tax structure.

In looking over the possibilities, we note that a properly structured spousal partnership could be your best choice.

Here are the tax benefits to you:

  • Your spouse’s income is free from self-employment tax.
  • You and your spouse both still qualify for the new pass-through income deduction under Section 199A.
  • The IRS audits partnerships at a much lower rate than proprietorships (Schedule Cs).
  • You don’t have to worry about the costs or hassle of running payroll or determining your reasonable compensation as you would if you operated the business as an S corporation.

Here are the potential issues:

  • The passive activity rules limit your spouse’s use of any losses against regular income.
  • Your cost of preparing a partnership return (but you’d have this cost with an S corporation too).

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