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My husband and I are each starting our own private enterprises--me as a web developer. I'm building a website for his company. Is it worth it for me to "charge" him? At the end of the day the money basically belongs to both of us, but I'm wondering if it would be beneficial for either of our purposes for me to charge him what I would charge a stranger for a similar service (roughly $3,000). For what it's worth, I have not yet made any money for my company, so I don't know if making some income might help me for tax purposes (or having an expense for him would be beneficial).

I am considering the implication both for doing this for last year, where neither of us made any money yet, and this year, where he almost certainly will have an income, and I hopefully will.

thumbtackthief
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4 Answers4

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It depends on the finances involved, but particularly if you're not billing anything right now and may have no revenue this year, it's probably a good idea to bill his company.

This is in part because some deductions or other tax treatments are only allowed if you have revenue and/or income. The biggest example I can think of is the Solo 401k - you can only contribute up to your self employed income. If you're planning to contribute to one (and you should, they're amazingly powerful tools for saving for retirement and for reducing your tax burden), you will have to have some revenue in order to have something to pay yourself with.

I don't believe you have to charge him, though, if it makes more tax sense not to (for example, if his business is operating at a loss and cannot benefit from expensing it, but you'd then have to pay taxes on your own income from it).

Joe
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Is it worth it for me to "charge" him?

I can think of two reasons why you might want to charge your husband:

  1. Building up your portfolio. Regardless of whether or not you charge him, you can include the website you build in your portfolio, of course. But if you can add a dollar amount to the work you performed, it may give your work some credibility (if it is a reasonable number) and help you generate more business.
  2. Tax deductions. If your business has more deductions than income, as is common when starting an enterprise, but his business does not, then charging him for services performed is now a business expense he can deduct. If this is not the case then making the transaction will actually increase the amount of taxes that you pay since it will count as taxable income for you.
enderland
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Nosrac
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I agree with some of the points of the other answers but why not avoid all the guesswork?

I highly recommend you not charge him now. Wait until the end of the year when you have much more information about both of your companies and then you can run the numbers both ways and decide if it would benefit you (collectively). If either of your businesses runs on a cash basis and you decide to invoice, just make sure the check is deposited before Dec 31.

Update: If you want to do this for 2016, at least your husband's business would have to be using an accrual basis (since it's too late to take the deduction on a cash basis). Simply run the numbers both ways and see if it helps you. If it doesn't help enough to warrant it for 2016 you could rerun the numbers near the end of 2017 to see if it helps then.

Diclaimer: I think it's OK to do this type of manipulation for the scenario you described since you have done (or are doing) the work and you are charging a reasonable fee, but realize that you shouldn't manipulate the amount of the invoice, or fabricate invoices. For example, you shouldn't ever think about such things as: "If I invoice $50K instead of $3K, will that help us?"

TTT
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Just from my own experience (I am not an accountant):

  • In addition to counting as 'business income' (1040 line 12 [1]) your $3000 (or whatever) will be subject to ~15% self-employment tax, on Schedule SE. This carries to your 1040 line ~57, which is after all your 'adjustments to income', exemptions, and deductions - so, those don't reduce it. Half of the 15% is deductible on line ~27, if you have enough taxable income for it to matter; but, in any case, you will owe at least 1/2 of the 15%, on top of your regular income tax.

  • Your husband could deduct this payment as a business expense on Schedule C; but, if (AIUI) he will have a loss already, he'll get no benefit from this in the current year.

  • If you do count this as income to you, it will be FICA income; so, it will be credited to your Social Security account.

Things outside my experience that might bear looking into:

  • I suspect the IRS has criteria to determine whether spousal payments are legit, or just gaming the tax system.

  • Even if your husband can't 'use' the loss this year, he may be able to apply it in the future, when/if he has net business income.

[1] NB: Any tax form line numbers are as of the last I looked - they may be off by one or two.

George
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