Sole Proprietor or General Partnership

[TJJ Enterprises]

What is the name of your state? Ohio

I'm starting a business. I am developing e-books and websites on home and family matters while my wife is going to do market research on products we may like to sell by selling through E-Bay.

If I register my trade name as a Sole Proprietorship, would my wife have to be considered an employee? (I know I could just have her be a contractor if necessary)

On the flipside, if we register as a General Partnership, do we need the whole partnership agreement or can it be something informal since we're married?What is the name of your state?

 

[tranquility]

Economic activity can be very complex. Something like what you are envisioning seems simple on the surface, but few treat it correctly. There is no difference in the tax treatment between a "sole proprietorship" that is registered or unregistered. Most people would treat what you propose as a business which is reported on schedule C. Even if audited, it is unlikely to cause much of a problem with the IRS if you did so and issued a 1099 or W-2 to your wife. However, you would more correctly be considered a partnership, along with appropriate reporting.

I recommend seeing a tax professional now and let him help you make a decision as to how you will go. It shouldn't cost that much and would help you down the road when you have all those accounting decisions you will have to make.

 

[TJJ Enterprises]

Well, I'm not sure I got much out of your response besides seeing my tax accountant, which I certainly should do.

In Ohio, when I file my trade name (which I have to do legally) I must check off my entity, so I do have to choose between sole pro and general partnership. Also in Ohio, if I have employees I need to get an EIN and file Workers Comp papers. With just me and the Mrs., I'd rather not have to do this so to me, it seems like treat her as a contractor or do a partnership.

That's where I'm stuck.

 

[tranquility]

Well, you're going to have problems in business if you don't read things carefully. As I wrote:

However, you would more correctly be considered a partnership, along with appropriate reporting.

Saying things like, "treating her as a contractor" is going to get you into trouble. Issuing a 1099 does not a contractor make. The person is either an employee or not. (The government really, really prefers employee status so if not you better be sure.) But, you could make the case you are not jointly operating the business with your wife and treat her with a 1099 or w-2 depending on the facts. She will then need to report appropriately on a schedule C or as wages. However, treating her in this way will require extra compliance expense. Someone is going to have to pay for workers comp. You don't just get to say "independent contractor" and wipe your hands on your pants. Many others. That's why you need to see a tax professional. There are many, many issues to resolve up front.

Your question was blunt and my, correct, answer was not useful. Yet, it answered the question you asked. A tax pro will help educate you into asking the right question(s).

 

[TJJ Enterprises]

Well I have some egg on my face, don't I.

The answer was right there and for some strange reason I didn't read it. I stand corrected. Thank you for your assistance. Your answer, indeed, was useful.

When I first read your second response, feelings of langer and wishes to lash out over your perceived tone and lack of 'tranquility' filled me. I'm glad I was able to look at the content more than the tone and discover that the information provided was quite useful and to the point.

Others, I fear, would not be so successful in the same situation. That is something you may want to keep in mind going forward. We do really catch more flies with honey than other substances.

 

[tranquility]

I assure you the tone of the post was completely intentional. It was meant to communicate the tone I perceived from your post in response to expertise given for free. Believe me, if you were sitting down at a chair on the other side of my desk I would be patient and kind and take all the time needed to make you feel the lack of understanding was entirely my fault for lack of adequate explanation.

And, I would bill you appropriately for the time.

 

[TJJ Enterprises]

Touche!!

and good day.