Partnership or Sch C

[Bees Knees]

to 1065 or not to 1065

I believe that even if you are in a community property state where you are allowed to put everything on a Schedule C, you should still file the 1065 and split the SE tax accordingly. Actually, for anyone who is concerned about the SE tax issue, filing the 1065 is the only way to be fair.

I am arguing the issue that you don’t need to file a 1065 simply to illustrate that the rules are inconsistent, and that there is NO penalty for deciding to do it your own way. I have cited codes, regs, and rulings which prove there is no penalty, and I even have actual experience getting clients out of the penalty using those procedures. Unregistered can claim I don’t know what I am talking about, but nobody has come up with a citation to contradict me yet.

I am also arguing the point, simply to argue with Armando. That is a hobby of ours, to argue tax law. It keeps us on our toes. In real life, I file 1065s for people who are obvious partnerships.

[Gretel]

What a pleasure

to follow this thread. It's like a crimi. It created new thoughts in me.

I agree that you should file a 1065 because of divorce and SE issues. I also think you should never do anything because the IRS says so since there is always appeals and the court who probably have a better common sense than the IRS.

We are advocates of our clients, right? So, if we have a situation where the SE issue is not important, why not save our clients some bucks and not file the 1065. Why make life easy for the IRS with a paper trail? They have too much control already. If nothing in regards to penalties can happen why not make use of it?

I don't believe Brad ever intended not to file a 1065 if it's a partnership with unrelated partners or even a corporation involved.

[Unregistered]

Spouse partners? Not necessarily

Well being in a community property state and after reviewing at least the SE Rules, I see no way around filing the form 1065 if the husband and wife are truly partners. The instructions are fairly clear in that the husband and wife need to file a form 1065, then they each receive their credits for SE. One important factor!

We had this come up in a divorce issue in Calif. Fortunately for me the divorce attorney is also a tax attorney. The wife who is filing for divorce was "whining" and trying to claim in the divorce settlement that she had not received any credits on her SSA Account and trying to claim as part of the divorce settlement. It was finally put to rest and not an issue for the divorce settlement.

The taxpayers jointly own a business but chose to file as a schedule C under the husband's account. Thereby only the husband receives the credit for SS/medicare, no child care, etc. The wife (that is now whining) did not even want to have a W-2 issued to her. They didn't want to pay the payroll tax associated with it. Which is really the same as paying the SE tax on the return.

So now I am of the mind that if it is a community property state, and it is a husband and wife business, that either (1) it becomes a partnership and form 1065 is filed so each report to their own SSA account or in the alternative, the spouse receive wages and report on W-2. Or S Corp!

In this day and age you just never know what will happen with marital bliss and business!

Sandy

Well, I've read all this spouse sch C / 1065 business and not once, that I remember has anyone mentioned the fact that two married people do not necessarily participate in the business. It seem all the preceeding palaver assume both are working in the business. First of all how does anyone know? In 33 years of doing taxes I have never even contemplated preparing a 1065 for any schedule C. It's never even come up in audit.

There is also the possibility that one spouse owns the business and hires the other spouse to work as an employee. Yes, yes, ya better have good payroll records to defend this in audit, but the advantages are worth the trouble. Section 105 says a spouse employer can give a bonifide spouse employee a medical plan, thus allowing their medical premiums and out of pocket medical expenses to be deductied as a business expense rather than on Sch A just like a one man corporation. A bonifide spouse employee can also participate in a solo 401k plan. My spouse has been my only employee for over 25 years and I have always given her a medical plan for herself and her family and a pension plan and deductied it on Sch C.

Yep, you guessed it, I'm a typ 2 person. Oh my . . . all dem rules give me a headache.

Greybeard

[Black Bart]

GeekGuyGreybeard

Well, I've read all this spouse sch C / 1065 business and not once, that I remember has anyone mentioned the fact that two married people do not necessarily participate in the business. It seem all the preceeding palaver assume both are working in the business. First of all how does anyone know? In 33 years of doing taxes I have never even contemplated preparing a 1065 for any schedule C. It's never even come up in audit.

There is also the possibility that one spouse owns the business and hires the other spouse to work as an employee. Yes, yes, ya better have good payroll records to defend this in audit, but the advantages are worth the trouble. Section 105 says a spouse employer can give a bonifide spouse employee a medical plan, thus allowing their medical premiums and out of pocket medical expenses to be deductied as a business expense rather than on Sch A just like a one man corporation. A bonifide spouse employee can also participate in a solo 401k plan. My spouse has been my only employee for over 25 years and I have always given her a medical plan for herself and her family and a pension plan and deductied it on Sch C.

Yep, you guessed it, I'm a typ 2 person. Oh my . . . all dem rules give me a headache.

Greybeard

How'd you do that (pull all that stuff forward from last summer)? Oh never mind. I don't want to know; besides somebody else will be doing it.

I thought those posts looked familiar, but, at first, assumed that Bees and Armando had decided to inflict some cruel and unusual punishment (rehash their C-1065 argument) upon boardmembers in retaliation for past sins.

As it happens, I, too, am a...ahem...type two person (Rollo Tomasi--"gettin' away with it") and have read your post with some interest. I was thinking of doing a C and buying a medical plan for my wife through it. Never audited, you say. Hmm.

I have to say, though, even if you disagree with the boys about the final result, you can't fairly say they don't know what they're talking about (they're talking theory--not what we can "get away with"). I've never seen such an in-depth discussion of any tax topic anywhere by anyone such as the preceding. Have you?

[Bees Knees]

How'd you do that (pull all that stuff forward from last summer)? Oh never mind. I don't want to know; besides somebody else will be doing it.

Anytime you make a new post to an old thread, it bumps that thread up to the top of the list. All of the threads that have ever been started on this board are still there. You just have to scroll through page after page to find it. Or you can use the search feature to find it if you remember certain words that were used in the post you are looking for.