You and your spouse operate a business together and are not sure how to report this income to the Internal Revenue Service. There are many choices on how to report this income, and unless another election is made, such as a S Corporation or an LLC, you will normally file a partnership return, Form 1065. The option to filing this partnership return is to operate as a qualified joint venture, which while it may result in the same tax liability, it will make your tax preparation less complicated. Partnership law is more complicated than other forms of business operations.
To qualify as a qualified joint venture, instead of a partnership, the following are required:
- The only members of the joint venture are the husband and wife;
- Both spouses materially participate in the trade or business;
- The business is co-owned by both spouses and not held in the name of a state law entity such as a partnership or LLC;
- Both spouses elect to be treated as a joint venture.
In order to elect this treatment they will split all the income, expenses, gains, and/or losses between the couple based on their share of ownership. Then each spouse will file a separate Schedule C (sole-proprietorship) on the individual tax return reporting these items of income and expenses. This income will then generate a self-employment tax schedule, Form SE, for each of the spouses.
When reviewing your filing status, and that of partnership, qualified joint venture, or S Corporation, there are advantages and disadvantages to each option. You should consult your tax professional on the proper entity to operate your business.