Friday, August 15, 2008

When Your Partner Should Also Be Your Business Partner

There has been a lot of hype over the past couple of years surrounding a new piece of legislation that allows a husband and wife who operate a business together to forego filing a Partnership return in favor of filing a Schedule C on their joint tax return.

The argument for this is that the accounting fees will typically be $200-300 less each year and the couple wouldn’t have to go through the hassle of signing & mailing in their tax return.

However, the downside is that audit risk will jump from .3% to 2.7%, leaving your business nine times more likely to be pulled for a random IRS audit!

The best options for any husband and wife business partners would be to establish an S-Corporation or an LLC. The second best option would be to remain a Partnership and continue to file a separate Partnership tax return. The worst option would be to "take advantage" of this legislation and file a Schedule C.


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