Volume 7 Issue 2008

As a result of the Small Business and Work Opportunity Tax Act of 2007, spouses who own and operate an unincorporated business may elect to be taxed as a qualified joint venture instead of as a partnership. Making the election would eliminate the need to file a separate partnership return for the business. A business owned and operated by a married couple through a limited liability company (LLC) does not qualify for the election.

Making the Election

To make a qualified joint venture election, three primary requirements need to be satisfied:

• The members of the venture can only be the husband and wife.

• Both spouses must materially participate in the trade or business.

• Both spouses must elect to have the joint venture election apply.

Each spouse is required to file a separate Schedule C, Profit or Loss from Business (Sole Proprietorship), or, in the case of a farming business, a separate Schedule F, Profit or Loss from Farming. Typically, each spouse would also file a Schedule SE to figure self-employment tax. These forms are filed with the couple’s income-tax return (Form 1040).

As a practical matter, spouses make the election by dividing between the spouses all items of income, gain, loss, deduction, and credit as though reporting was being conducted as a sole proprietor. In this way, each spouse receives credit for Social Security and Medicare coverage purposes based on his or her calculated net earnings.

Other Matters

The employer identification number (EIN) of the spouses’ partnership must remain with the partnership — one spouse cannot continue to use it for the qualified joint venture. A new EIN is not required for the venture unless excise, employment, alcohol, tobacco, or firearm returns will be filed. If an EIN is needed, the spouse who will be filing should request it from the IRS as a sole proprietor. If the business has employees, either spouse may report and pay the employment taxes due on wages paid to the employees.