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Old 04-28-2009, 10:29 PM
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Social Security Taxes Between Spouses

My wife and I own the majority of the LLC from which we earn all of our income. I will earn around 102,000 this year, and my wife will earn 20-30,000. Should we just pay all income to me in order to avoid social security taxes on her earnings? Will this adversely effect my state and federal withholdings.



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Old 04-28-2009, 10:49 PM
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There are 2 schools of thought on this subject. The first school of thought states that the taxpayer should maximise his tax savings. So in order to reduce the overall tax liability, the entire income should be given to the taxpayer and not to the spouse, so as to avoid the S/E tax on the income that exceeds the S/E limit (currently this amount is $106,800 in 2009).

Clearly, with respect to your LLC you would want to provide a considerably higher guaranteed payment to yourself, thus ensuring a minimal amount of residual profit to be shared with your spouse. This approach is a preferred approach by many taxpayers who have a partnership business and the main goal is to minimise the overall tax liability.

The other school of thought on the same subject states that the taxpayers spouse should also make social security tax contributions so as enable the spouse to collect her social security benefits come retirement age. This strategy may seem to appropriate where the taxpayer's spouse has either little or no social security tax contributions.

However, if the taxpayers spouse has made the sufficient social security contributions, then the former strategy would be appropriate where maximising tax savings is the goal.

Clearly, having both spouses take a guaranteed salary would negatively impact your overall tax liabilities as the spouse being put on guaranteed salary would result in additional tax liabilities.

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Last edited by TaxGuru : 04-29-2009 at 10:08 AM.


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