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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.

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    Is his business likely to make significantly more money than yours? Are you expecting to have any revenue this year in your business? – Joe Jan 19 '17 at 21:27
  • Long term I have no idea which of us will be more profitable. I would include this in our 2016 taxes, in which neither of us made any revenue (but we had some expenses) – thumbtackthief Jan 19 '17 at 21:35
  • Do you file "jointly"? Also, is your husband already claiming a loss or is he profitable? And, do you both own sole proprietorships or s/c corps? – maplemale Jan 19 '17 at 22:02
  • We will likely not file jointly. He also will be claiming a loss. He's a sole proprietorship; I haven't really gone through steps yet but will likely also be a sole proprietorship. – thumbtackthief Jan 19 '17 at 22:19
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    Even if it doesn't improve your overall financial picture, charging his business may be a good idea, because it may help you and your husband keep a clear dividing line between things you do for each other because your companies have a business relationship, versus things you do for each other because you are married. – zwol Jan 20 '17 at 18:49
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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).

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    You could in theory use this to shift expenses or revenue from one of you to the other of you in a way that provides a tax advantage. So long as the shift reflects a business reality and isn't just a tax dodge it's probably legal. – David Schwartz Jan 20 '17 at 13:34
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    @8protons In most cases he can deduct the expense, so it reduces his income by same amount as her income goes up - so it is a wash. That's part of the point of my answer though, it depends on the circumstances - if he won't have any income for a long time or ever, he might never be able to deduct it and then yes throwing money away in taxes. – Joe Jan 20 '17 at 22:48
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    @thumbtackthief My sincerest apologies! That was extremely ignorant of me, I'm sorry. I wish your spouse, your business, and you much success! – 8protons Mar 10 '17 at 19:53
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    @8protons No worries. Appreciate your apology though :) – thumbtackthief Mar 10 '17 at 22:33
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    @8protons Not if, for example, it is offset by losses that otherwise would provide no benefit. You can use this to shift income to a spouse that has losses and shift losses to a spouse that has income. Note that this is generally legal so long as the shift reflects some economic and business reality and isn't done just for tax advantage. – David Schwartz May 17 '17 at 16:51
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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.
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    if you can add a dollar amount to the work you performed, it may give your work some credibility I don't think I've ever encountered dollar amounts in someone's CV or portfolio. That's because a dollar amount only helps you if it is exactly how much the reader would expect to pay for such a service. Otherwise, they think you're expensive and pass you over or they think you're cheap and you've set yourself a low anchor for negotiations. – DepressedDaniel Jan 21 '17 at 3:40
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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?"

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    Very good point, I'd even add: while waiting for that date, research can be done to know exactly what are the benefits for each company of declaring that expense/revenue in that country. The value could also be adjusted accordingly in order to provide the most beneficial tax deduction. – CPHPython Jan 20 '17 at 11:38
  • @TTT I think OP is considering doing it retroactively for 2016 (so there's rather less time, assuming they don't do cash basis anyway). – Joe Jan 20 '17 at 22:49
  • @Joe - did OP mention that anywhere? I (obviously) didn't get that impression. I assumed the businesses are starting now in 2017, probably due to: "My husband and I are each starting our own private enterprises..." Perhaps we should clarify this. – TTT Jan 21 '17 at 4:39
  • @TTT It's hidden in a comment but the OP did mention it (possibly after you wrote your answer). – Gala Jan 21 '17 at 13:49
  • @Gala - thank you (and Joe too). Somehow I missed that. I've updated my answer. – TTT Jan 21 '17 at 14:28
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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.

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