OK, so you set up a partnership for this business.

With a partnership, you can pay out the profits to you and your wife. You will make those payments as "Guaranteed Payments", and not as payroll payments. These are straight payments to the partners with no taxes withheld, so you'll also need to send in quarterly estimates to cover the taxes owed on this income.

The partnership can then set up a SEP, and each of the partners can contribute to the SEP based on their guaranteed payments.

The partnership tax rules are very complicated, and I recommend that you seek out a CPA to help you out with following these rules. You might also want to read through IRS Publication 541, Partnerships, available at: http://www.irs.gov/pub/irs-pdf/p541.pdf.

Also, there is unlimited risk to both partners with a general partnership. You might be able to get some protection from each other's liabilities and lawsuits if you set up an LLC instead. You should definitely speak with an attorney about this.

I think you would have been better served to operate your Locum Tenens as a sole proprietorship. You could have put your spouse on payroll for the work she does, and then set up a SEP to put away based on her salary and your self-employment income.
Best of luck with this endeavor.

Zip Code: 01801

Thank you for your reply.

It would be nice if you could comment more on what you suggested, that I should have set up a sole partnership and pay my wife. I like that idea. My partnership with her is now on paper only. No account was set up. So I could dissolve that and begin a sole partnership and pay her from there.

Considering I am the one working and my wife "works" by setting up assignment and logistical support is there a restriction about how much I can pay her? Would the IRS limit that to a "fair" compensation? Can I pay a consultant? And how would I pay my wife and the consultant, with a 1099-R?

I will appreciate your guidance in this new idea.

Zip Code: 33573

While I'm happy to answer your questions, I recommend that you set up a time to meet with a CPA in your area to discuss what entity makes the most sense for what you are trying to do. I also recommend that you meet with an attorney so you can find out what risks you can minimize by choosing the proper type of entity.

That being said, I think a partnership could help you achieve your goals. And since you already notified the IRS that you are a partership, if it will work, then why not use it. You and your wife will just take Draw payments (also called Guaranteed Payments) out of the partnership for services provided. You can then each contribute to a SEP IRA, or some other retirement account, based on these payments.

Operating as a Sole Proprietor would most likely require that you sign up for a new EIN. So the more places that already have your current EIN, the bigger the hassle.

Plus, if your wife will be the only employee on payroll of this practice, you'll need to incur the costs and headaches of dealing with processing payroll and remitting the approprite withholding taxes. (You'll avoid these costs and headaches by having the partership pay her Guaranteed Payments.)

As you can see, there are a lot of variables to consider. The various laws and tax rules in your state add another layer of confusion. That's why I recommend that you talk with a local CPA and attorney to help you decide how to best move forward.

Zip Code: 01801