Taxes due for flip with married couple both with W-2 earnings

[Daniel Schiff]

My spouse and I have a real estate pass thru LLC we are 50:50 partners / owners of. We are in the middle of a flip which will sell in 2024 and have a second one lined up. Estimate to make 80-100k from both deals. For 2023 we both had W-2 earnings where my spouse (Pharmacist) exceeded the social security earnings threshold and will do so again in 2024. I'm an IT Director and am just under the threshold in 2023 and will be also be under by in 2024. If after the flips we pull $40k out and reinvest the remaining profits with our original capital, do we get to choose which member to allocate the $40k income to avoid self employment tax on my remaining cap, or would it split and I pay self employment tax for both social security and Medicare and my spouse only pays the Medicare tax? I don't mind maxing out my Social security - but it really won't push my eventual benefits up much so I'd prefer to keep the cash. We do take advantage of deductions- maxing out both 401ks, HSAs in 2023 and itemizing deductions and will do so in 2024 - so we fall at the lower end of the 24% federal bracket (MAGI of $240-260k- so additional ordinary income is 24% income tax plus whatever Medicare/Social security we must pay on the $40k
I know I can retain all the earnings in the LLCand 1031 exchange until we no longer have W-2 wages to reduce our taxes, but I plan on using the $40k for a personal home improvement - replace two HVAC systems and install a new wood deck and landscaping). Any info on the SE tax split is appreciated- I could t find any specifics to splitting between married members with w-2 earnings.

[Michael Plaks]

@Daniel Schiff

The way we read your post on taxes is the same way you would read our posts on IT. ;) As in - you're asking questions about a specific higher-level issue while missing the basics.

So, basics first. Your extra taxable income is $80-100k, not $40k. It does not matter what you pull out and what you reinvest, you're taxed on the entire amount that the LLC made. (Unless your LLC elected to be treated as a C-corporation, which is highly unlikely.) Also, flips are not eligible for 1031 exchanges, so it's not an option.

To your specific question, you're apparently in Indiana. In Indiana, husband-wife LLCs are required to file as partnerships. You probably cannot allocate your income (and, with it, SE tax) other than 50/50, however you may be able to achieve your desired result via a "guaranteed payments" system. A real answer requires examining your LLC operating agreement and the actual facts of your operation. Not doable in an online forum, takes an actual consultation with a tax professional.