Two sole proprietors or one? Married freelancers in a community property state - what about 401(k)s?.?

Question

Right now I am a sole proprietor business and my spouse is also the same business, because we can do that in this state. We both earn. I have a self-employed 401(k). Can my spouse also?

Should we become two sole proprietorships? What would be the best reason to incorporate instead?

Answer 1

Your question consists of two different issues: tax deferred retirement savings and a legal entity of your business.

For biggest reason to incorporate is to shield your personal properties from liability reasons. Either a corporation or LLC will serve the purpose. LLC is quiet easy to set up and not very different in accounting. You can have one or multiple personal in both corporation or LLC.

There are many retirement saving options for small business: SIMPLE, SEP, 401K etc. IRS Publication 560 is a good place to start, http://www.irs.gov/pub/irs-pdf/p560.pdf

For this year, even without a 401K your spouse can still open a regular IRA account and enjoy the benefit of reducing your tax obligation.

Best wishes.

Answer 2

You can both remain sole proprietors and file two Schedule C's with your Federal form 1040. This will allow IRS to see what income and expenses are attributed to both individuals.
Incorporating may have some legal liability protection that sole proprietors don't have. If you strongly feel about incorporating and since it's the only two of you, try Sub S corporation. It's the closest to having the benefits of a sole proprietorship and most in liability protection. In addition, income from your corporation doesn't hit you with self employment tax that you have to pay if filing Schedule C.
Of course, both of you can contribute to a pension plan such as self-employed 401K or IRA and utilize the tax benefits of such plans.

Answer 3

Really feel very strongly that the decision to change the nature of your business from a proprietorship to an corp or LLC HAS to be done with a CPA or even a lawyer. Too may other issues (tax and non-tax) that need to be discussed!!!!!

Answer 4

The Only really good reason to incorporate is to transfer liability from yourself to the business. If the company then file bankruptcy, you get to keep your house, your car and your life savings.

Answer 5

perhaps no longer interior the familiar dealings of the corporation, yet she would have the capacity to proportion interior the earnings and losses of the corporation. could the corporation go under, properly. suited to register a LLC. Little greater criminal leniency in some aspects.