Husband and Wife work together, Hub receives 1099... Cont Calc?

[K-t-F]

Husband and Wife real estate partners... Together they earned $225K. Husband is paid from the real estate office the 1099. Can that income be split between the husband and wife so they can each defer and share in an employer contribution? or would the 1099 have to be paid to a newly established company, the "Mom and Pop Real Estate Company" and then divided the income up amongst each other?

A followup question... when you have the partnership as described above and both hub and wife defer $13,000 each, how do you calculate SE income? and SE tax deduction? and all those wonderful taxes? Since they are hub and wife, is there one SE tax deduction?

[Blinky the 3-eyed Fish]

You say they are partners but only the husband is paid? Is it a true partnership setup or has he been filing as a sole proprietor?

[Belgarath]

Don't know if this will help, but it is from the instructions for the Schedule SE.

If you were married and both you and

your spouse were partners in a partnership,

each of you must pay SE tax on your own

share of the partnership income. Each of

you must file a Schedule SE and report the

partnership income or loss on Schedule E

(Form 1040), Part II, for income tax pur-

poses.

[GBurns]

Multiple problems.

Is she a licensed agent?

Is her license with the same RE Broker as her husband?

Working together is not a partnership.

The income cannot be split after the 1099 is issued.

If you form a corporate entity "Mom & Pop Realty Company", it would only affect future earnings. Retroactivity of Plan adoption, income splitting etc would not be applicable.

Since separate SE and Sch C are used, the deductibility of her expenses might not be possible since there has been no business activity. Husband might not be able to deduct the wife's expenses either.

If she is a licensed RE agent with the same Broker as her husband and she has been signing contracts with her signature only, there most likely is a problem with her not getting paid. A gratuitous assigment of income to another party might not be viewed favorably if either is audited by the IRS. Such an assignment might be viewed as an attempt to limit SS taxes etc.

There is also a problem in many states with the payment of commission to someone not involved in the deal and the payment to someone other than the person disclosed on the RESPA and other documents.

[K-t-F]

I understand everyone's point. What if the situation was this:

Bob and Sue have a business, they sell real estate. Bob is the salesman and goes out and meets the client. Together they form "B & S Real Estate" which is a partnership, not incorporated. They do not have their own office but rather sell through the local Century 21.

Q/ If Century 21 issues a 1099 to B&S Real Estate could the income be split among Bob and Sue (as partners)? resulting in 2 deferrals and 2 employer contributions? Each would pay SE tax and med and fica.

I am guessing if the 1099 was issued to Bob alone this may have less a chance?

[mbozek]

You need to check state law but in most states partnership income is allocated equally among the partners after deducting expenses and return of capital unless the pship agreement provides otherwise. (e.g., NYS Partnership law Sect. 40). If state law permits sharing of income, H & W would each report their profits from the Pship for 04 on a separate Schedule C. Some states permit oral partnership agreements. For income tax purposes they would have to file the appropriate form designating the entity as pship. They need to check with a tax advisor to see if there are any restrictons on spousal partnerships under the IRC which would be different from the above rules.

Under Rev rul 81-114 a qual plan adopted by the last day of a tax year can be established retroactively to the beginning of the year for all comp paid in the year. Otherwisde a SEP can be established up to the date for filing the Pship 04 tax return with extensions. The contributions are deducted from the income of the Pship and passed on to the partner who claims a deduction on the 1040.

Each partner is subject to SECA tax on the net earnings from SE paid to them by the Pship before deducting the contribution on the 1040. Net earnings from SE is calculated on schedule SE. Since partners take above the line deductions on the 1040 for pension contributions, it does not matter whether the 13k is a salary reduction or employer contribution to the plan since both reduce taxable income and both are subject to SECA tax.

[GBurns]

You also have to check state law to see if a license to sell RE can be held by an entity rather than a natural person. If a natural person only, then commission might only be payable to that natural person and might not be assignable to the business entity. Commissions are usually only payable to a duly licensed entity.

[K-t-F]

Thanks again.... this guy needs to talk to a tax professional. All I can do is give him a heads up to his potential obsticles.