Which is better for taxes? Legal protection?

[Jenn27549]

My husband and I run a business together. Right now it is a sole proprietorship. He started it in December 2007, I came on board full-time in May 2008. We only got married in August 2008.

So this year we will just file regular, since I had another job until May, etc...

We've been debating on whether or not to make it a partnership from here out, for legal reasons (i.e. if something happened to him, I would still have control over the business, if we were to get divorced, the split of the business would be easier, etc...) But what will that do to our tax liablilty? Will that make it higher? I think it will. Am I right? Would we have to file any forms to change our status?

Up until now we haven't had employees or a steady payroll system. We now do, so we have been advised to keep it a SP, have me as an "employee" and take home a regular paycheck so we can write that off a payroll. Right, I get that, but I don't want to be legally considered an "employee" since we both agree I own an equal share.

What's the best course of action? Is there any middle ground, where he can still file as a sole priprietor with me as an "employee" but we have a legally binding contract that otherwise outlines my ownership stake in the company?

 

[Drmdcpa]

Omg wrong advice.

The issue is more a liability question than a tax question. Depending on the state you are in, I would recommend moving away from a SP. Too much liability especially with employees. A general partnership would not solve the liability issue. Nor would an LLC since you are both active in the business.

From a tax perspective each of the above would also more than likely result in the highest taxes since all three have no limits on FICA/SECA taxes.

Chances are a corp is best. But information is missing to state for certain.