I'm looking for some advice on a method of dealing with a K-1 partnership reported tax loss.
Right now, I have a K-1 showing a substantial passive loss that I cannot deduct from my taxes because I have no offsetting K-1 gain. However my wife has a business that she is now running as a sole proprietorship. I'm wondering if would be practical and legal for us to convert her business to a general partnership with she and I as the partners, then distribute some of the gains on K-1 forms to each of us. We could then carry over our K-1 losses and, next year, use the K-1 gains from our new partnership to offset the losses, thus gaining some tax savings.
From what I can tell, a general partnership, as opposed to a limited liability partnership or any kind of corporation, is simple to set up even without a lawyer, imposes no special taxes or fees on us, and will fill the bill.
Can anyone tell me if this is right or wrong?
Are there difficulties or pitfalls I should be aware of?
I'll add here that my wife and I met in 1962 and have been very happily married since 1968, so we're not worried about the kind of squabbles that I know some partnerships degenerate into.
Thank you very much.
Alan