Who can get the deduction?

Hi

Here is a new one for me.

Sole prop pays spouse consulting X amount as 1099 income, first time in 2019, can 2019 be considered as date of hire for the spouse? Spouse works for another company and receives a W-2, totally unrelated to all here.

Sole prop will do the same for 2020.

Sole prop wants to set up a db plan for 2020 and wants the spouse included as well.

As the spouse is getting income in form of 1099, she is considered as a sole prop as well, correct? Hmmm, not so sure here.

Can a db plan be set up for 2020 and have the sole prop adopt the plan and the spouse adopts as a second employer (assuming that she can be classified as a sole prop)? Each entity will fund their own portion of the db plan. easy to do as only HCE's and different groupings. The sole prop will/cannot fund the spouse's db portion, if necessary, correct?

Thankfully no other employees other than their youngish children which are excluded.

Something does not smell right here, what am I not seeing?

Thank you

Just that the breakdown of deductions is probably more challenging than it should be.  Need a good, detailed spreadsheet to make it all work.  But, it should still be full speed ahead.

Thank you for your response.

Calculation of breakdown is not an issue especially with a CB design. I will design each as their own group.

So, if I understood what you said correctly, both sole props can adopt the plan separately and contribute/deduct separately (even if spouse's income is coming from the sole-prop). I have done this in the past (but both spouses had their own incomes separately from different businesses). I have also filed 1 5500 form (the filing as an EZ was something I asked IRS 15+ years ago and was told that it was ok to do EZ filing since both entities are spouses).

Thank you

1 hour ago, Jakyasar said:

Calculation of breakdown is not an issue especially with a CB design. I will design each as their own group.

 

 

Famous last words.

Jakyasar, as long as there is one plan for 2 spouses, you only need 1 Form 5500. 

41 minutes ago, Bob the Swimmer said:

Jakyasar, as long as there is one plan for 2 spouses, you only need 1 Form 5500. 

Did somebody say differently?

MIKE--I responded the way I did because of his sentence below which seemed to be a discovery to him (unless I missed a nuance which is quite possible).

"I have also filed 1 5500 form (the filing as an EZ was something I asked IRS 15+ years ago and was told that it was ok to do EZ filing since both entities are spouses)."

There is so much disclarity in the first post I guess I just never saw that language as implying even more. 

It was not a discovery for me, just shared my experience.

Mike, not sure what disclarity you are referring to.

Anyway thank you

59 minutes ago, Jakyasar said:

 

Mike, not sure what disclarity you are referring to.

Uh, that's the point!

Ok, whatever it is, thank you