Partnership Pay

[Unregistered]

I work with sched c and Scorps, but I have a client that is setting up a business as a partnership with his wife, and I have not worked with partnerships. Both parties will work in the partnership full time. Are they allowed to be paid as employees, with taxes withheld, etc. or will they be handled like the schedule c and the share of the profits be their income?

Thanks.

[OldJack]

In reality a partnership is nothing more than 2 or more Sch-C participants that file a partnership form 1065 instead of the Sch-C. Therefore, the partners do not take W2 type payroll with withholding taxes. All distributions to a partner are either as guaranteed payments (like a salary without payroll withholding) or distributions of taxable profit. However, the partners are taxable on the net profit regardless of distributions. It is a fact that some partnerships ignore the rules and put partners on W2 payroll with withholding and the IRS doesn't seem to mind.

[Bees Knees]

If the husband and wife are the only partners, and they do not do special allocations or abuse Section 179 or any other crazy stuff, they can just throw everything on one Schedule C and split the SE tax between the two.

[JoshinNC]

Here we go again!

I'm not getting in this one, but I would make a husband and wife in a non-community property state that both have ownership shares in a business file a 1065. If they don't want the added expense they should make one of the PARTNERS an employee of the Schedule C spouse.

But, like I said, I'm not getting in this one.

[Bees Knees]

I'm not getting in this one, but I would make a husband and wife in a non-community property state that both have ownership shares in a business file a 1065. If they don't want the added expense they should make one of the PARTNERS an employee of the Schedule C spouse.

But, like I said, I'm not getting in this one.

What is the penalty if they just decide to put everything on a Schedule C and split their SE tax? What is the IRS going to do if they don't file a 1065?

[Black Bart]

Armando

In the interest and spirit of mercy, compassion, and humanity, I implore you NOT to respond to this thread until AFTER April 17th.