Guaranteed Minimum Payments to wife in a husband-wife partnership to save on Social Security tax - permissable?

"caj11" wrote

I think it's permissible if the spouse carries the work load or there is another valid reason, besides tax avoidance, to make that guaranteed payout in that fashion.

personal tax preparation. It is a husband & wife partnership, each with a 50% share, but the wife made all the money in the partnership. She simply chose to set it up this way. The partnership netted about $220,000 during 2012, so that would normally mean $110,000 of profits for each of them, and each of them subject to almost the maximum Social Security tax.

from the partnership, splitting the remaining $1000, so only she pays the maximum amount of Social Security tax, and her husband only pays a little bit of Social Security tax. Is this permissible or is the IRS already wise to things like this?

Convert the partnership to a single member LLC with the husband as an employee before year-end. Pay the husband a modest salary. The husband pays his fica and medicare tax from his salary. The LLC matches that amount. The LLC (wife) deducts the husband's salary and fica/medicare match as a business expense. The wife files a Schedule C and pays SE tax on the net income and deducts her half of the SE tax as an adjustment to income.

Do they have to do married filing separately, or is married filing jointly possible?

MFJ