If you make a choice to start a business with your friends or your family, it can be hard. But, working with your significant other or spouse can be even more difficult. Even for couples who don’t work together, keeping the stress from each other’s work from interfering with the relationship can be a challenge. When couples work together, the ability to keep work-life and home-life separated gets much more difficult. However, many couples are successful in both their relationship and their shared business, but most do it by making decisions and plans ahead of time to set yourselves up for success.
Husband And Wife LLC: How to Do it the Right Way
Early Considerations – Before Getting Started
Even before you start the business your are planning to start with your significant other, there are a number of decisions that need to be made. Importantly, many tax-impacting decisions should be made early in the process to ensure you structure your business in the way that makes the most sense for your financial picture. Before you become husband and wife business partners, it is important to meet with your tax advisor and your attorney to ensure that, as married business partners, you set up your business in a way that makes sense for your overall tax and financial picture. The type of business entity you establish will have significant impacts on how you pay taxes, and potentially, how much tax you pay.
Individual Designations
Early on in the process of establishing your husband and wife business partnership, you need to determine whether each of your will participate as business owners, running the business, or whether one of you will run the business as the owner and the other will be an employee. To determine the answer to that question, you will want ti consider: (i) how each spouse’s expertise can play into a benefit the business; (ii) how much say each spouse will have in day-to-day operations of the business; (iii) how much time each spouse has to give towards the operation of the business; and (iv) will both spouses work as full-time employees.
Co-Owners
If you determine that both you and your spouse are going to be owners of your husband and wife LLC and that you will both participate in the oversight and operation of the business, the tax implications can be more complex. As a result, it may be most beneficial to choose an entity type that helps both or you limit your individual liability, such as a husband and wife llc, a partnership, or a corporation.
Owner-Employee
Your tax situation may be simplified if, as married business partners, one spouse is the owner and the other spouse is an employee of the business. You can still operate as a husband and wife business with one person, the owner-spouse, setting up a single-member limited liability or a sole proprietorship. Either will be simple for your attorney to set up for you, as very little paperwork is involved. The other spouse, the employee, will simply receive their paycheck from the business, which will have their federal income tax withheld. Similarly, the spouse who is the employee will receive Social Security credit based on that spouse’s wages. The couple’s overall income tax would then be based on the employee-spouse’s salary and the pass-through income if the business is a partnership or limited liability company.
The Most Important Consideration
Before you begin any husband and wife business or married partnership, the most important thing you can do the help set yourselves up for success and to protect your relationship is to put everything in writing. A husband and wife partnership, just like any business arrangement that has more than one person involved, should be based on a written document that reflects the agreement of the persons involved. While it might have negative impacts on your business if you fail to enter into a partnership agreement or an employment agreement, its likely the lack of such agreements will negatively impact your personal relationship. Having a document that clearly sets forth on the front end what the two of you agreed to can significantly minimize the issues that can arise later by eliminating the possibility of arguments about what was or was not agreed to at the start of your business venture.
Types of Agreements
If you share ownership with your spouse, it is important to have a buy-sell agreement included in any business agreement you formulate. Though no one likes to think about it, should you and your spouse divorce or die during the tenure of the business, the buy-sell agreement will lay out exactly how things will play out under any of those scenarios. This avoids disruptions at the business by sorting out the hard details when everyone is in agreement rather than forcing it to be completed in the midst of crisis or turmoil.
If one spouse is going to work as an employee, it is likely in everyone’s interest to put together an employment agreement laying out clearly the benefits and pay of the employee-spouse will be and also what will happen if the employment relationship is terminated by either party. The employment agreement can also include a confidentiality clause which would prohibit the spouse from disclosing information defined as confidential by the agreement, and it can also include an agreement not to compete with the business should the employment terminate for any reason.
Qualified Joint Venture
There is a provision by which the IRS may allow you and your spouse to file taxes for a non-corporation, jointly-owned business as though it were a sole proprietorship. In that situation, spouses can file two Schedule C forms. This is a possibility that you may want to consider if you form a husband and wife partnership. You will need to consult with your attorney if you choose to form a husband and wife LLC, as it may not be available to you depending on certain circumstances. If you are able to utilize this option, it should save you time and money when filing your tax returns.
Summary For Husband and Wife LLC
This article is about the way how spouses can both carry on the trade or business together. Of course, it’s a great decision to operate your family business by hiring family members. However, there are a few issues, which you need to take into consideration beforehand. Thus, this article is here to assist you with it and show you how to operate your family business as a married couple.
To find out more about Husband and Wife LLC or other types of married couples in business, check out an article from IRS: https://www.irs.gov/businesses/small-businesses-self-employed/married-couples-in-business
Or schedule a free consultation with Vaksman Khalfin today and we will help you ensure a thriving and harmonious business venture.
