Husband and Wife LLC


J

John Wood

I've just created an LLC, of which my wife and I are the only members.
Recently I've heard about something called a 'husband and wife LLC' -- but I
can't really find anything about it on the web.

Does anybody know what a huband and wife LLC is? what are the main
differences, and how do I declare that an LLC is a H&W LLC to the IRS?

Thanks.
 
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P

Paul A Thomas

John Wood said:
I've just created an LLC, of which my wife and I are the only members.
Recently I've heard about something called a 'husband and wife LLC' -- but I
can't really find anything about it on the web.

Does anybody know what a huband and wife LLC is? what are the main
differences, and how do I declare that an LLC is a H&W LLC to the IRS?

There isn't any specific designation as such. It's probably a perverted
take-off of a "mom-n-pop" type of business.

You would file Form 1065 with you and your spouse as owners, splitting the
profits on respective K-1's, and reporting those profits on your personal
tax returns.
 
J

John Wood

Thanks for your reply.

One more (related) question - my wife won't be taking a wage from the LLC,
as she already has a full time job. It's my understanding that if she isn't
receiving a wage and is helping voluntarily, she won't have to pay self
employment tax -- is that true?
 
P

Paul A Thomas

John Wood said:
One more (related) question - my wife won't be taking a wage from the LLC,
LLC's don't pay wages to their members/owners.

as she already has a full time job. It's my understanding that if she isn't
receiving a wage and is helping voluntarily, she won't have to pay self
employment tax -- is that true?
Untrue. She will owe both income tax and SE tax on her share of the profits
from the LLC. Now, there are ways top skew the amount that is taxable for
SE tax through the use of "Guaranteed Payments" to partners. In that case,
let's say that you draw out $1000 a month in "guarnateed payments". These
become an expense to the LLC and income to you (it all flows through on the
K-1), but it's not income to her. So, you still split the remaining
profits, and she'll owe SE tax on her share, but you will have a higher
amount of "earned income" the "Guaranteed Payments" as well as your profit
percentage.
 
J

John Wood

That's invaluable advice, thanks a bunch.

Paul A Thomas said:
LLC,

LLC's don't pay wages to their members/owners.



Untrue. She will owe both income tax and SE tax on her share of the profits
from the LLC. Now, there are ways top skew the amount that is taxable for
SE tax through the use of "Guaranteed Payments" to partners. In that case,
let's say that you draw out $1000 a month in "guarnateed payments". These
become an expense to the LLC and income to you (it all flows through on the
K-1), but it's not income to her. So, you still split the remaining
profits, and she'll owe SE tax on her share, but you will have a higher
amount of "earned income" the "Guaranteed Payments" as well as your profit
percentage.
 
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R

Ron

Per Revenue Procedure 2002-69, November 2002, if you live in a community
property state you can file a Schedule C instead of Form 1065, which might
be a bit easier for you. This may be what your "husband and wife LLC"
refers to.
 
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