Balancing Love and Ledgers: Tax Tips for Entrepreneurial Couples

Destiny and your shared passion have brought you together, and now you’re diving into the world of business as a couple.

Your creativity and hard work will lay the foundation for your business, but understanding the financial details — especially taxes — will ensure your business truly thrives.

Now, tax considerations, as well as calculations, can seem incredibly overwhelming, but with the right guidance, you can turn them into real advantages.

In this article, we’ll discuss important tax considerations for couples running a business together and explore some tax loopholes that might benefit you.

We’ve crafted this guide especially for couples like you, who are driven and blending love and business together.

Kudos to all of you for taking this brave, bold step 🙂

We’ll walk you through how to structure your business, maximize deductions, and plan for the future — all while keeping your relationship strong and your business flourishing. 

So jump right in and break this tax maze together.

Why Taxes Are Important in a Joint Venture for a Couple

It goes without saying that taxes are an integral part of running any business. And they become even more significant when you and your partner are involved together. 

To be honest, taxes can make or break your joint venture if you overlook the intricate financial details.

Here are few key reasons why taxes play such a crucial role in both your relationship and your business

Offers Financial Stability

Paying the correct amount of taxes ensures that your business remains financially stable. 

It helps avoid unexpected liabilities that could strain your finances and your relationship. 

When taxes are handled properly, you can budget more effectively and plan for the future without fearing a surprise tax bill.

Boosts Legal Compliance

Complying with tax laws is essential to avoid legal issues. Failure to comply can lead to penalties, interest, and even legal action.

These consequences can be severe and disrupt your business operations, putting both your business and personal assets at risk.

Builds Trust and Credibility

When you manage your taxes correctly, it builds trust and credibility with stakeholders, including customers, investors, and financial institutions.

This trust can lead to better business opportunities and more favorable terms with banks and investors when seeking loans or investments.

What Consequences Can Happen if You Don’t Pay Taxes On Time

Neglecting your tax responsibilities can have serious consequences, both for your business and your relationship.

Penalties and Interest

The IRS imposes penalties and interest on unpaid taxes. These can accumulate quickly, leading to a substantial financial burden.

 Penalties can be as high as 25% of the unpaid taxes, and interest accrues on both the unpaid taxes and penalties.

Legal Action

Persistent failure to pay taxes can result in legal action, including fines and imprisonment. The IRS can also place a lien on your business and personal assets, making it difficult to secure loans or sell property.

Business Closure

In extreme cases, unpaid taxes can lead to the closure of your business. The IRS has the authority to seize your business assets to settle unpaid tax debts. 

This not only ends your business venture but also affects your personal financial stability.

Relationship Strain

Financial stress is one of the leading causes of relationship problems. When a couple faces tax issues, it can lead to arguments and strain the partnership. 

Effective tax management helps avoid these problems and keeps your relationship and business healthy.

Tax Considerations When Running a Business as a Couple

Here are four key tax considerations you should keep in mind before you decide to take the plunge into entrepreneurship together

1. Choosing the Right Business Structure

The business structure you select will significantly impact your taxes. It determines how you report income, the deductions you can take, and how you handle profits and losses.

Sole Proprietorship: One partner owns the business, and all income is reported on their personal tax return. 

This can lead to a higher tax burden for the single owner. 

For example, if you’re running a small consulting firm where one of you handles most of the work, this might seem straightforward but could result in a heavier tax load for the sole owner.

Partnership: Both partners share the business income, deductions, and credits. 

The business itself doesn’t pay income tax; instead, it passes through to the partners’ personal tax returns. 

For instance, if you run a catering business together, this allows you to split the income, which might lower your overall tax burden and make it more equitable.

Limited Liability Company (LLC): An LLC can be taxed as a sole proprietorship, partnership, or corporation, offering flexibility and liability protection. Imagine your tech startup takes off.

S Corporation: This business structure allows income to pass through to the owners’ personal tax returns, avoiding self-employment taxes on some income. However, it requires paying reasonable salaries subject to employment taxes.

Let’s say your e-commerce business grows rapidly. An S Corporation might help you save on self-employment taxes while ensuring you both get fair compensation.

However, this means all business income is reported on one partner’s tax return, which could push you into a higher tax bracket. But, as a partnership, you can split the income, potentially lowering your overall tax burden.

doola offers business formation services that can guide you in choosing the right structure. We also provide insights on the benefits and drawbacks of each structure, helping you decide if you should opt for an LLC, which offers flexibility and liability protection, or an S Corporation, which might save you on self-employment taxes.

2. Filing Taxes Together

When it comes to filing your taxes, you have two main options: filing jointly or separately.

Each has its own implications for your tax liability.

Let’s say you and your partner have a tech startup. Filing jointly might give you a larger standard deduction and more credits, which can be beneficial if your combined income is moderate. 

However, if one of you has significant medical expenses or deductible business losses, filing separately might reduce your overall tax liability.

Let’s break it down for more clarity.

Here are a few flexible options for you to file taxes:

✔️ Joint Filing: Combines income and deductions on a single tax return. 

This can lower your tax rate but may result in the “marriage penalty” if your combined income pushes you into a higher tax bracket.

✔️ Separate Filing: Each partner files their own tax return. 

This can be beneficial if one partner has significant deductions or medical expenses but generally results in a higher combined tax bill.

Also, understanding available deductions and credits can reduce your tax liability. 

Key deductions include:

✔️ Home Office Deduction: If you run your business from home, you can deduct a portion of your home expenses.

✔️ Health Insurance Premiums: Self-employed individuals can deduct premiums for themselves and their family.

✔️ Retirement Contributions: Contributions to retirement plans like SEP IRAs are tax-deductible and help save for the future.

✔️ Business Expenses: Deducting legitimate business expenses, from supplies to marketing, reduces your taxable income.

Our bookkeeping services ensure you have a clear picture of your financial situation throughout the year. We can help you evaluate whether filing jointly or separately will be more advantageous for your unique circumstances.

3. Maximizing Deductions and Credits

Taking advantage of available deductions and credits can significantly reduce your taxable income. The key is to keep meticulous records and understand what you’re eligible for. 

Let’s break down some of the most beneficial deductions and credits for a couple running a business together.

✅ Home Office Deduction

If you both work from home, you can claim a home office deduction. This deduction allows you to write off expenses related to the portion of your home that you use exclusively for business purposes. 

Here’s a step-by-step guide on how to maximize this deduction:

Determine the Area

Measure the square footage of the space in your home that you use exclusively for your business. This could be a dedicated room or a clearly defined area within a room.

Calculate the Percentage

Divide the square footage of your office space by the total square footage of your home.

This gives you the percentage of your home that is used for business purposes.

Example: If your home is 2,000 square feet and your office space is 200 square feet, your office space is 10% of your home.

Expense Allocation

You can deduct 10% of your home expenses, such as rent or mortgage interest, utilities, homeowners insurance, and home maintenance costs. 

Example: If your monthly rent is $1,500, utilities cost $200, and homeowners insurance is $100, you can deduct 10% of these expenses:

👉 Rent: $1,500 x 10% = $150

👉 Utilities: $200 x 10% = $20

👉 Insurance: $100 x 10% = $10

Your total monthly home office deduction = $180.

✅ Health Insurance Premiums

As self-employed individuals, you can deduct health insurance premiums for yourself, your spouse, and your dependents. 

This deduction directly reduces your adjusted gross income (AGI), which can lower your overall tax burden.

Eligibility

To qualify for this deduction, you must not be eligible for an employer-sponsored health plan, either through your business or another job.

Calculate Premiums

Keep detailed records of all health insurance premiums paid throughout the year. These can include medical, dental, and long-term care insurance.

✅ Retirement Contributions

Contributing to retirement plans like SEP IRAs, SIMPLE IRAs, or Solo 401(k)s can provide substantial tax benefits.

SEP IRA:  You can contribute up to 25% of your net earnings from self-employment, up to a maximum of $61,000 (for 2024). 

Example: If your net earnings from self-employment are $100,000, you can contribute up to $25,000 to a SEP IRA.

Solo 401(k): This plan allows you to make elective deferrals up to $19,500 (for 2024) plus an employer contribution of up to 25% of your net earnings, with a total contribution limit of $61,000. 

Example: If your net earnings are $100,000, you could contribute $19,500 as an employee and up to $25,000 as an employer, for a total of $44,500.

✅ Business Expenses

Deducting legitimate business expenses can significantly reduce your taxable income. Here are some common deductible expenses:

✔️ Office Supplies and Equipment: Items like computers, printers, paper, and other office supplies are deductible.

✔️ Travel Expenses: If you travel for business purposes, you can deduct travel expenses such as airfare, lodging, meals, and transportation.

✔️ Marketing and Advertising: Costs associated with promoting your business, such as website development, online advertising, and printing marketing materials, are deductible.

✔️ Professional Services: Fees paid to accountants, lawyers, and other professionals for business services are deductible. 

Example: If you pay $2,000 for legal advice and $1,500 for accounting services, these costs are deductible.

4. Planning for Self-Employment Taxes

Self-employment taxes can be a bit of a headache, but understanding and planning for them is crucial when you’re running a business as a couple. 

These taxes cover your contributions to Social Security and Medicare, which are essential for your future benefits. 

Since you’re not on an employer’s payroll, you have to handle these payments yourself.

Now, let’s get to the basics to build more clarity on this, as it is a little complicated to understand.

What Are Self-Employment Taxes?

As mentioned above, Self-employment taxes consist of Social Security and Medicare taxes. 

For 2024, the self-employment tax rate is 15.3%, which includes:

📣 12.4% for Social Security

📣 2.9% for Medicare

If your net earnings exceed a certain threshold, you may also be subject to an additional 0.9% Medicare tax.

Example: Let’s say you and your partner run a successful consulting firm. Your net earnings from self-employment are $100,000 for the year. 

You would calculate your self-employment taxes as follows:

• Social Security Tax: $100,000 x 12.4% = $12,400
• Medicare Tax: $100,000 x 2.9% = $2,900

Total self-employment tax: $12,400 + $2,900 = $15,300

Additionally, using accounting and payroll tools like QuickBooks, Gusto and FreshBooks can help you track your income and expenses, calculate your estimated self-employment taxes, and remind you of upcoming payment deadlines.

With doola’s tax package, you can calculate your estimated tax payments. Our services ensure that you’re setting aside the correct amount and making timely payments, which can prevent penalties and interest imposed by the IRS.

Okay, enough about paying taxes. Let’s see how you can save some of your hard-earned money with tax loopholes.

Tax Loopholes if You Want to Save Some Money

While you should always aim to comply fully with tax laws, there are a few legal strategies, often perceived as loopholes, that can help reduce your tax burden. 

Let’s take a look at them:

Income Splitting

Income splitting between you and your partner can lower your overall tax rate by ensuring that each of you remains in a lower tax bracket.

Example: You and your partner own a boutique clothing store. 

By ensuring both of you receive equal shares of the income, you can prevent one of you from jumping into a higher tax bracket, which would increase your overall tax liability.

Hiring Your Spouse

If your business structure allows, hiring your spouse and paying them a salary can be a smart move. 

This salary is deductible as a business expense, and you can offer tax-free benefits such as health insurance.

Example: In your small landscaping business, your partner handles administrative tasks.

 By formally hiring them, you can pay a reasonable salary and offer benefits like health insurance, reducing your taxable income.

Family Health Insurance

If you employ your spouse, you can provide a family health insurance plan and deduct the full premium cost as a business expense.

Example: In your event planning business, you and your partner need comprehensive health coverage. 

By hiring your partner, you can offer a family plan that covers both of you and possibly reduces your taxable income significantly.

Retirement Contributions

Contributing to retirement plans such as SEP IRAs or Solo 401(k)s is a great way to reduce your taxable income and save for the future. 

Let’s say, you and your partner, who owns a photography business, have decided to set up SEP IRAs. 

Contributions to these plans are tax-deductible, allowing you to reduce your current tax burden while securing your financial future.

Ready to Take the Stress Out of Managing Your Business Finances? Let doola Help You.

Running a business as a couple is a rewarding but challenging endeavor. 

By approaching your taxes with the same passion and dedication you bring to your business, you can ensure financial stability and continued success for both your business and your relationship. 

Remember, the key is to stay informed, seek professional advice when needed, and always pay attention to the intricate and minute details. 

With the right approach, you and your partner can enjoy the fruits of your labor without the stress of unexpected tax issues. And for everything else, doola is here to help you.

Here’s how we can help:

✅ Easy Setup

No more wrestling with paperwork and operating agreements. 

We get your business registered and set up correctly from day one, ensuring it’s simple and hassle-free. 

Whether you’re forming an LLC, corporation, or another business entity, we simplify the entire process so you can solely focus on growing your business.

✅ “Business-in-a-box” Toolkit

Our services include bookkeeping, EIN acquisition, compliance and everything in between. By handling all aspects of your business finances, we ensure seamless management and compliance. 

Our bookkeeping services keep your records organized and accurate, helping you maximize deductions and stay on top of tax regulations. 

✅ EIN Acquisition

An Employer Identification Number (EIN) is crucial for many businesses. We can obtain an EIN for you, streamlining the process and saving you time.

✅ Bank Account Setup Assistance

We help you establish a business bank account by connecting you with our partner banks, ensuring a smooth setup process. 

✅ Virtual Mailbox

Maintain a professional business address with our virtual mailbox service.This service helps you keep your personal and business correspondences separate and organized.

✅ Tax Filing Services

We partner with trusted tax service providers to offer tax filing assistance at a minimal cost. This ensures that your taxes are filed correctly and on time, avoiding any potential penalties.

✅ Expert Guidance

Last but not least, navigating the complex world of business taxes and compliance can be daunting, but you don’t have to do it alone. 

Our expert guidance helps you understand and manage your tax obligations effectively.

From quarterly estimated tax payments to year-end filings, we provide the support you need to stay on track and avoid penalties.

Want to know how to run and grow your business together?

Book a free consultation with us today.