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How to split profits between husband and wife from flips as sole proprietorship?

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Michael Gao

California

Dec 29 '12, 08:21 PM


Hi,

I am currently doing flips as a husband and wife team. I "hire" my wife to do research for me on deals and I make offer to close the deals and hire GC to do the fix work for me.

This year, I opened a "Keogh profit sharing plan" (solo 401k) under my name at Fidelity for both of us for tax deferral contributions. AFAIK, there are two components in solo 401k deferral: a) salary deferral by the "employee" and b) profit sharing by the "employer". However, I am not sure how to split the profits between us for the purpose of contribution.

What's a reasonable split? If someone has an example, that would be great!

Thanks!
Michael



Steven Hamilton II Verified Moderator

Real Estate Investor from Lake Villa, Illinois

Dec 31 '12, 02:22 AM


@Michael Gao,

Are you paying your wife as a contractor or as an employee? If you are paying her as an employee then you may contribute to a solo 401k for her. If you are paying her as a contractor, you [b]cannot[b]. But she could open her own solo 401k which is not cost effective.

You can treat the profits as 50/50 in this case if you are treating it as a join venture, then you will report the income on two Schedule C's. One for her and one for you.
As you and I discussed that it would be much more efficient to put her on payroll and allow full contributions. Be careful that you do not contribute more than you are allowed between your employer and yourself.

-Steven



Medium_hta_logoSteven Hamilton II, Hamilton Tax and Accounting
E-Mail: [email protected]
Telephone: (224) 381-2660
Website: http://www.HamiltonTax.Net
-Steven the Tax Guy Hamilton Tax and Accounting LLC (224) 381-2660


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