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There are 4-5 people living together. Two of them are married to each other. Their incomes fluctuate meaning there are times when only 1-2 people are able to earn for a year. Most of them seem to be doing contract work. Now, when only one person earns, the person pay tax on the entire money, while in reality the money is split among 4-5 people and thus results in much lower tax bracket or maybe even 0% tax. What to do about this situation?

Country is USA.

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Set up a company or partnership. Generally what you describe is a classic partnership. In the US - the partnership itself is not taxed (as opposed to a corporation), and each partner is taxed separately on the distributions. That is, the partners as a whole will be taxed on the income of one, if it is distributed through the partnership. Exactly what you want.

Do consult with a tax adviser familiar with the Federal and the State laws with the specifics of setting it up and managing it, maybe you'll get a better advice from a professional (which I am not, of course).

  • but their lines of business greatly vary? – tumbler Nov 7 '11 at 9:42
  • so? Correct me if I'm wrong, but you're talking about a commune, where every member donates all their income, and everyone takes out of the global share per certain agreement. This is, by definition, a partnership. – littleadv Nov 7 '11 at 9:43
  • Okay, it's just that they are all related - just not in a way that they can claim each other on taxes. Would one also need to show transactions from one bank account to the other? It's more like the money is used to pay the rent for all (one house), food, car insurance and everybody's credit cards. However, if it helps the case, we can induce bank account transactions. – tumbler Nov 7 '11 at 9:50
  • @tumbler - I don't understand the connection. You get a distribution from the partnership, all the money must be distributed. What you do with that - doesn't matter, really. – littleadv Nov 7 '11 at 18:21
  • There is no common law protections beyond the standard family unit (2 parents and children not of majority) in the federal tax code. You can do as littleadv advises and form a partnership. What this will not do is protect you from personal income tax obligations. You will probably need to consult an accountant or tax attorney (maybe both) to get this set up and protect your group and the individuals. – user4127 Nov 7 '11 at 22:04

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