Reduce Self-Employment Taxes by Renting from Your Spouse
By Sean Dever, CPA & Associates

If you operate your business as an LLC*, partnership or sole proprietorship, do you know that Uncle Sam helps himself to a big chunk of your profits in the form of self-employment taxes?

To be specific, he's taking a full 14.13% in taxes. (That's 92.35% of the published 15.3 percent because there's a reduction on Schedule SE of your personal return.)

But what most folks don’t know is that there’s something you can do to dramatically reduce your self-employment tax bill… by renting an office in your home or building from your spouse!

The best way to describe the strategy on how to reduce your liability is by using a simple example.

Assume your business is established as a single member LLC and you report your business results on Schedule C of your personal tax return. The entire profit from your business is subject to self-employment taxes and if your business earned $100,000 in net income during the year your self-employment tax liability would be $14,129.55 (93.25% of the 15.3% mentioned above).

If you set up a rental relationship with your spouse and have them rent space back to you for your building / home office / etc then this moves income off your Schedule C and onto your Schedule E on your personal tax return. Schedule E (rental income), unlike Schedule C income (business income), does not give rise to self-employment taxes.

If you rented your home office or building space from your spouse for $2,000 each month, or a total of $24,000 per year for example, this would reduce your overall self-employment taxes of $3,391.09 by the end of the year. Not a bad savings for moving money from your right pocket to your left!

Please remember the examples above are used for illustrative purposes and you should consult your professional advisors at all times before implementing similar strategies. If you would like more information on the above, or help with any of your tax or financial needs, please contact us today for more information. We are waiting to serve you.

Sean Dever, CPA & Associates is a full service accounting firm offering payroll, bookkeeping & SPECIALIZED tax services to over 150 Gymnastics Schools across the United States. If you would like to learn more about our services or receive a complimentary review of your prior year tax return please contact us at sean@devercpa.com. You can also find out more about our firm and services at www.devercpa.com.

*refers to single or multi member LLC’s.