The passive activity rules limit your spouse’s use of any losses against regular income. Which may be the only potential issue besides having an increase in tax preparation cost.
It is crucial to understand that a partnership doesn't mean your spouse work for you. If you set up your structure where your spouse works for you then you must pay Social Security and Medicare taxes for your spouse. The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax.
If you would like to discuss how your choice of business entity works in today’s tax environment, please don’t hesitate to contact us.
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Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.