Can/should a married couple of freelancers become a two-person company?

by frooboy. Posted on Sep 15, 2020    2    5


I've been self-employed for more than 20 years (no corporate structure, I just file Schedule C on my personal return), and over that time my wife has always had a full-time job. It's possible, however, that she might move to self-employment in medium-term future.

I'm wondering if, in that scenario, it would make sense to create an LLC or some similar small company that we would own, that would invoice our clients, and that would pay us some combination of regular paychecks and company profits. My curiosity about this is twofold:

  1. Would this be legal? We don't actually work in the same industry -- I'm a technical writer and editor, she's a health trainer and educator -- but if Amazon can sell both books and cloud computing under one corporate umbrella, it seems to me that our work could be lumped together under the umbrella of "consulting" or what have you. But I'm not sure how strict business licensing laws are around this.
  2. Would this be worth the trouble? I know that it would be a whole layer of accounting work that I'd either have to do or pay for, and while I kind of enjoy that kind of thing I wouldn't want to do it just for the sake of doing it. The #1 concrete gain I imagine we could get from this is health insurance -- I know even a two-person company can buy health insurance on the group market, and I'm curious if that would be substantially cheaper or better than us just buying a plan individually on the ACA market. (We make too much to qualify for ACA subsidies, FWIW.) #2 possibile benefit would be setting up a "corporate" 401k or other retirement plan that would let us put more away than individual retirement accounts would. Finally, I know that shifting some income to the form of corporate profits rather than self-employment or W2 income has tax advantages; I've looked into it for myself and the benefits don't match the expense and hassle, but it'd be a nice-to-have if I'm already doing this for #1 and #2 reasons.

Anyway, just curious if anyone has thoughts/opinions on this -- apologies if it's considered off-topic for this sub bc technically, I'm thinking about setting up a legal structure that would make us not self-employed.

Also, one final point: about 20% of my income comes from creative writing under on a website I own, which is copyrighted to me personally and I wonder that would need be treated differently than work I do for hire -- would I be able to assign copyright to our company and have the income from the site go through the company, or would I need to treat that income as Schedule C personal self-employment income? Not a deal-breaker either way but I'm curious if anyone knows anything about it.

Edit: I should say that I am aware of the tax benefits in a general way and you don't have to try to sell me on them. I am much more curious about (a) whether we could get a better deal on insurance this way and (b) whether there would be any legal issues with a single company that offers such disparate "services."


Comments

CCC_PLLC 1

Attorney here. You could potentially have significant tax savings with minimal legal overhead if you formed an LLC with S Corp status. For the precise amount in taxes you’d save you’d need to speak to an accountant, but from a legal perspective it would work just fine with what you are looking to do.

avalpert 1

You don't need an LLC to set up 401ks for each of you - you could do that now for this year if you want.

And I doubt you'd find a group plan for the two of you that is substantially cheaper than what you can get on the ACA market, there really isn't much risk pooling going on with just two folks to get you any savings - but I'm sure you could run it by some brokers to get quotes to confirm.

BK_Verbs 1

Speak with a tax attorney. The money they can save you in these types of situations far outweighs the cost.

xtlou 2

Preface: I own several businesses and one is in the fitness and health industries.

You’re going to want to isolate your wife’s business in the fitness industry into it’s own LLC: her work in training opens her up to a lot more potential for lawsuits and you’re going to want to ensure her insurance is set up appropriately to cover that LLC.

Whether or not separate SCorps work for you is absolutely a topic to discuss with a small business accountant and/or lawyer based on your financials and other issues.

  frooboy 1

Thanks for the advice! I am now realizing that "health educator and trainer" probably does not convey what I meant it to: she does corporate-style trainings for health professionals like doctors and nurses on techniques, best practices, legislation, etc. So, not the kind of trainer you're talking about, though I definitely thought about whether she would have different liability needs than mine and it's something to look into.