Forming a husband and wife LLC can be a great way to organize your business. When you start any business it is important to set it up correctly and understand the tax consequences involved.
To form an LLC you need to name your limited liability company, selecting a name that is not in use by another business in your state. The secretary of state website will generally link to the database where you can search names.
Once you’ve chosen a name, you can start an LLC by designating a registered agent, a person or company that is authorized to do business in your state.
The registered agent is who will receive legal notices such as service of process and tax forms on behalf of your LLC spouse company. You can designate yourself in some states, but it generally best to choose a company that specializes in providing this service.
When taking the first steps in how a husband and wife can form an LLC, you must file documents with your state and pay a fee.
To make your LLC husband and wife company official, you will need to create articles of organization that acts like a charter for your business.
You will file these with your state. You must also file a formation document found on your state business registrar site (check the Secretary of State web page) that provides the name of your LLC spouse company, address, registered agent, length of existence, and name and address of at least one owner who is filing.
Once your state accepts your articles of organization, you have officially formed an LLC owned by husband and wife.
Now that your LLC is in place, you need to create an LLC operating agreement.
This is a contract between you and your spouse that specifies your management plan and the agreement you have should the company close or if one of you needs to buy the other out in the future.
You will indicate what percentage of ownership you each have, however if you live in a community property state this designation will not matter should you divorce.
In that situation, the court will divide the LLC 50/50. Keep in mind that you can arrange ownership any way you like and can even name just one spouse as an owner and designate the other as an employee. Income tax and FICA will need to be withheld for the employee spouse.
No matter how ownership is set up, you will need to obtain an Employer Identification Number (EIN) through the IRS web site.
Because you are forming your LLC as husband and wife, you have some options when it comes to your LLC taxes. Your income taxes from your LLC are based on your personal salary and profit from the business.
If you choose to set up your LLC with just one spouse as a member, you can classify it as a sole proprietorship. If your LLC has more than one member, you can classify it as a partnership or a corporation.
If you choose to identify yourselves as a partnership, the LLC does not file tax returns and you pay tax personally on your income. Because you are married, the IRS allows you to divide each stream of income, expenses, and tax credits proportionate to your percentage of ownership in the LLC.
You can choose to identify as a corporation and must choose a C corporation or an S corporation. A C corporation will file its own tax return. You will also personally file taxes and pay tax on your dividends, which are not tax-deductible for the LLC, so you end up paying a double tax on that income (once as the LLC and once as the member).
If you select an S corporation, income is reported by the LLC but is passed through to you as owners and then you report that income yourselves but do not pay self-employment tax as a partnership would.
Creating an LLC as a married couple gives you the opportunity to work together and leverage some tax flexibility. Follow the steps carefully to set up your LLC correctly and enjoy the benefits it offers.