2018 Tax Changes/Strategies

Submitted by Renee Grey on Mon, 2018-09-17 16:55

Not exactly an IRA question, but thinking ahead for 2018 taxes…can a solo business owner who is subject to the threshold of the qualified business income deduction, pay their spouse as a 1099 contractor? (The spouse is working for them anyway, currently without pay.) Would that accomplish reducing the business’ income to possibly allow the business to capitalize on the 20% deduction? Would that also allow the Spouse to file a Schedule C, and in turn allow a 20% deduction on the spouse’s 1099 income, too (assuming below the threshold)?



Submitted by William Tuttle on Tue, 2018-09-18 03:45

  • The QBI deduction thresholds are based on the taxable income of your filing status. If you file MFJ, shifting income to your spouse will not materially change your MFJ taxable income.
  • You can not generally justify paying a spouse as an independent contractor. You must hire them as a W-2 employee or treat a sole proprietorship as a Qualified Joint Venture (see Schedule C Instructions).
  • The only way to materially change your MFJ taxable income would be via pre-tax/tax deductible retirement plan contributions.
  • The income shifted to a spouse may not change the total employer contributions, but will allow the spouse to make employee deferrals. This will decrease the AGI and taxable income.
  • This may or may not get you below the thresholds.

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