Husband-wife partnerships are specific kinds of businesses, and therefore they are legally permitted to file taxes somewhat differently to other kinds of partnerships. Partnerships have to use Form 1065 to file income tax. However, husband-wife partnerships might qualify to be classed as qualified joint ventures, and be able to file with a Schedule C in some situations. Bear in mind that, in this instance, all business owners have to file Schedule Cs separately, dividing up the expenses and income.
Marriage between same-sex couples has been legal in all fifty American states since June 2015. It is still unclear how this new rule will impact spouses who own businesses together, with regards to state and federal income taxes, and taxes for self-employed people (i.e. the money you have to pay towards Social Security and Medicare, depending on the income from your business).
If you are in a partnership with your spouse and no one else, you might be classed as a qualified joint venture, providing:
-You use Form 1040 to file a personal joint tax return
-There are no other partners aside from your spouse
-Each of you materially took part in the partnership throughout the year. In other words, you were each active participants in the daily running of your company. If only one of you was involved in the company, this spouse can fill out a Schedule C, however, the other person who was not involved cannot.
Once all these criteria are satisfied, you can opt for qualified joint venture filing, rather than filing as a partnership. The IRS accepts qualified joint venture filing for 'unincorporated businesses' only. State law organizations (i.e. limited liability partnerships or limited liability companies) are specifically excluded by the IRS from qualified joint venture filing.
Therefore, if your spouse and yourself run a limited liability company, you cannot be classed as a joint venture. Both of you have to file Schedule C forms separately. Firstly, divide the expenses and income based on each spouse's membership percentage. After this, all shares are logged on separate Schedule Cs. If you sell any products, you might have a product inventory. In this situation, you will have to calculate the cost of items sold on the Schedule C. If you make an error on the form, you will have to use Form 1040x to file an amended return.
Both spouses own half of a partnership with a $100k income, a $30k profit and $70k in expenses. Both spouses prepare Schedule Cs, declaring $35k in expenses, a $15k profit, and a $50k income. The $30k total profit is displayed on Line Twelve of Form 1040, and the two Schedule Cs are used as supporting paperwork.
Using a Schedule C rather than a partnership return could save you money and time, however, make sure that you fulfill the criteria for this option. Prior to filing, consult a tax adviser.
