Payroll for Complicated Situations

[rfk]

Need clarification for following situations - rather convoluted.

1. Wife has business (just started) in her name (Sole Prop). Husband does the physical work; husband wanted to keep himself out of the lawsuit happy situation that exists here in CA. So wondering about the best way to have husband to get paid, since he is not owner of the sole prop. He drives truck for the sole prop owned by wife. Makes his own schedule, etc. Wife does not control how money is made.

2. Same husband and wife, another question. Husband has had S Corp, similar industry, not same business. Husband is 100% shareholder of this S Corp business in state of California. Husband is mostly working in wife's business discussed above, so spends little time at this juncture in his own S Corp. Maybe 10% of the month at his S Corp and 90% at the wife's business. Wife works majority of the time in the S Corp, again while husband works a majority of time in the wife's sole prop business.

Bottom-line: Want to know how these two individuals should be paid for their respective situations. I have a general idea, but want confirmation from others. Wife should take salary as officer / office worker, and husband should take no salary for S Corp and some remuneration for Sole Prop work? Also want to be mindful of S Corp salary requirements from IRS perspective for husband as long as S Corp is profitable. Or better ideas are...

Thanks.

RFK

[ChEAr$]

Proper payroll

Seems simple enough. Husband should receive a W2 from wife since she owns the business. Of course this also entails FUTA tax, and, depending on CA, SUTA as well?

And wife should receive a regular paycheck from the S corp and therefore a W2 at year's end.
And her wages, being from a corporation will be subject to both SUTA and FUTA.

[BHoffman]

How similar are the industries? Similar enough that Husband and Wife could perhaps both operate out of the SCorp and forget about the Sch C?

CA is a community property state, and I think there are rules regarding her percentage of ownership in the SCorp if it was formed during their marriage.

[ChEAr$]

How similar are the industries? Similar enough that Husband and Wife could perhaps both operate out of the SCorp and forget about the Sch C?

CA is a community property state, and I think there are rules regarding her percentage of ownership in the SCorp if it was formed during their marriage.

Aw heck, Beth; I'd forgotten about the communistic aspects of the case.

[Burke]

In the case of the Schedule C business, it would seem to me that since all profits are subject to SE taxes, she could do whatever she wishes with the net profits, including giving them to him. He would have to claim any W-2 income if he were paid in that manner out of the Sche C, so on a joint return it makes no significant difference -- unless they particularly want him to have the earnings credit. They could also change the sole prop to an LLC for the limited liability, if that is what he is concerned about. It would still be a disregarded entity if the ownership did not change.

[Davc]

Need clarification for following situations - rather convoluted.

1. Husband does the physical work; husband wanted to keep himself out of the lawsuit happy situation that exists here in CA.

If they think that's going to work, they're dreaming...

[Gretel]

If hubby gets W-2 and he is the only employee It would be very beneficial to set up a health reimbursement plan for health insurance and medical expenses to make them a deductible biz expense.

[ChEAr$]

If hubby gets W-2 and he is the only employee It would be very beneficial to set up a health reimbursement plan for health insurance and medical expenses to make them a deductible biz expense.

Ausgezeichnet!

[rfk]

Thanks all

for the comments. I really appreciate your time and contributions! I'd like to think husband would do W-2, with the intention of merging the new business into the existing. Would like to change the S Corporation into an LLC with S Corporation designation eventually.

Yes it is correct that it is community property state, and that the corporation was formed during marriage, so is split down the middle anyway.

rfk