Mark Kohler advises Greg in Houston on structuring 1099 income for spouses using an S-Corp to cut self-employment tax. He explains how to set up W-2s and K-1 pass-throughs, warns that licensed professionals like LMFTs often need separate S-Corps due to licensing rules, and recommends consulting a tax lawyer for about $400 an hour.
Chapters
Yes, very good. Greg in Houston says, mark, my wife and I have 1099 income. Now I had a call like this earlier this week. I had a client that was a contract. The husband was a contractor and the wife was an MFT marriage family therapist. And a lot of times it's lmft, Licensed Marriage and Family therapist. So let's use that example. So we've got husband that's a contractor and we've got wife who is an LMFT that's a licensed marriage and family therapist. So if I'm a licensed marriage family therapist, all of my income is 1099. Even if a, you know, HMO is paying me and I'm in an office, whatever, if I'm a contractor, I'm getting a 1099, right? That's how it works. So Greg in Houston says, well, can't we run this like an S Corp? Greg? Abso freaking lutely for many, many, many of my clients, we're going to set up one S Corp and I want all the income from both operations to go into this S Corp. And we're going to set up a W2 for wife and a W2 for husband. All the K1 pass through loving it. And that's the typical structure. Do not run this through a schedule C. And a Schedule C, it's going to cost you 15.3% in self employment tax. If you don't do the S corp, you're going to pay out the rear end in taxes. Now for you accountants out there and lawyers and licensed professionals, you're going to say, Mark, you can't do what you just suggested. And I started out a path with a bad example because here's the problem. Under the Doppel rules of both states, that's the division of professional licensing, they do not want non licensed marriage and family therapists owning an S Corp with a licensed individual. For example, my law firm can only be owned by lawyers. An accounting firm has a little more flexibility. But engineers, doctors, lawyers, accountants, we all fight this battle that the Doppel does not want non licensed professionals owning part of their company. So in this example, based on the income, if I was doing a consultation with these folks, what we typically do in that situation is the wife is going to own the one S Corp and she's going to run her licensed marriage and family therapist income through it and husband's going to own his S Corp and run the construction through that. That's happened. Sometimes I get a unique situation where the wife is a lawyer, the husband's a doctor. The wife is an engineer and the husband is a realtor. So sometimes you have these licensing problems that don't allow me to combine everything in one S Corp. But when I can, my first choice is to have 1s corp for both husband and wife. In some situations, I have to have two S Corps. So, Greg in Houston, talk to your accountant, talk to your lawyer. If you're. If they don't know what you're talking about and you just learn more in this five minutes in a while than you have talking to your own advisors, give us a call. What I like most of our clients to do is do a consult with the tax lawyer first. Just for an hour. You're out 400 bucks. Get a plan. Put together your whole plan for the year. They can look at your tax return. They'll give you some advice on all your steps and strategies before your end. So we can do one or the other or little of all three or whatever you want. So get a consult. If you're hearing unique strategies from me you've never heard anywhere else, please get a second or third opinion.
