Ok, here's a question for all of our brilliant tax experts here.
I want to finally set up an LLC for my husband and I - I read somewhere that it makes more sense to have one person be the LLC main 'owner' and have one spouse be the employee - but then doesn't that mean even MORE paperwork and filings, etc.

What is the fastest, easiest, and most financially intelligent direction to go with this?
Should I just set up the LLC and call us both owners?

How does that change the amount of tax we pay at the end of the year?

Thank you so much! This is making me crazy and I need to get on top of it NOW.

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I am not a tax expert by any means, but my husband and I are setting up an LLC together to put each of our businesses under. He has researched it and found that just setting up an LLC with both of us as owners is easier in the long run as opposed to having one of us be the owner and the other the "employee" in the LLC or setting up a Limited Liability Partnership (which is offered in our state). We would only file for the business we own together and he said that makes it easier come tax time as well. I'm not sure of a lot of the specifics, but wanted to let you know what he has found as he has looked into the same question.

Thanks so much Mary - great to get some info from someone who's dealing with this personally!
Does anyone else have additional perspective on this one?

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If Hamid were listed as an employee, you would have to set up a salary, deduct taxes, and file a quarterly report/deposit for him. I would stay away from the employee thing until you have no choice.

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Lily Chambers, The Virtual Office Goddess, LLC
Author "How to Do Your Own Small Business Bookkeeping"

That's what my gut feeling was - too much extra hassle. So when I file the LLC is it as simple as listing both of us as owners?

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Ummm... I would (maybe?) check w/the SCORE folks.

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Lily Chambers, The Virtual Office Goddess, LLC
Author "How to Do Your Own Small Business Bookkeeping"

To be an LLC as a partnership requires at least 2 members. Members of an LLC cannot be employees of the LLC. If you set it up as a single-member LLC then it is considered a disregarded entity by the IRS, which just means you would continue to file a Form 1040 Sch C vs. a 1065 partnership return.

Hassle-wise it would be easier to set it up as a partnership and you would both take distributions on your net income. If you set it up as a single-member LLC and then have one be an employee you would then be responsible for payroll taxes and all of the reporting, all of which is deductible to the business.

Depending on the income it could actually cost you less in self-employment taxes to be partners rather than one an employee, because you would only pay self-employment tax on your net income. If you have an employee you are required to pay the employment taxes plus state and federal unemployment as well as workers comp insurance.

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Rebecka Melson ~ Virtual Business Services

I'm set up as a single-member llc and my hubby works for me w/out recognition or pay. This way, I just file a sched-c w/out all the hassle 'cuz the income goes to the household budget anyway. On the other hand, the hubby shows up as unemployed. Hmmm... maybe I should change to a LLP?

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Lily Chambers, The Virtual Office Goddess, LLC
Author "How to Do Your Own Small Business Bookkeeping"

So much great info here, thanks to all of you, I'm on the right track and feeling like I am ready to make this happen. I don't know why I let it intimidate me...sheesh!

Lily, Hamid would freak if I told him we were going to list him as 'unemployed' LOL...your husband is a good sport.

SO - it sounds like we're looking at an LLP (Limited Liability Partnership) I like the ring to that

Thanks again to all of you for pitching in your info! I envy the ease with which you navigate the tax world...

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It's actually just called an LLC. It is a limited liability company taxed as a partnership. Doesn't have quite the same ring to it, does it? LOL

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Rebecka Melson ~ Virtual Business Services