California’s Husband and Wife Business: A Partnership Or Joint Venture (And Other Tax Issues)?

An unincorporated business jointly owned by a married couple is generally classified as a partnership for Federal tax purposes. For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a “qualified joint venture,” whose only members are a husband and a wife filing a joint return, can elect not to be treated as a partnership for Federal tax purposes.

Reasons Why a Husband and Wife Might Want to Make the Election Not to be Treated as a Partnership

Because a business jointly owned and operated by a married couple is generally treated as a partnership for Federal tax purposes, the spouses must comply with filing and record keeping requirements imposed on partnerships and their partners. Married co-owners failing to file properly as a partnership may have been reporting on a Schedule C in the name of one spouse, so that only one spouse received credit for social security and Medicare coverage purposes. The election permits certain married co-owners to avoid filing partnership returns, if each spouse separately reports a share of all of the businesses’ items of income, gain, loss, deduction, and credit. Under the election, both spouses will receive credit for social security and Medicare coverage purposes.

The rest of this article is available at www.irs.gov. It continues with a discussion of these business topics:

Definition of a Qualified Joint Venture

How to Make the Election to be Treated as a Qualified Joint Venture

A Business Owned and Operated by the Spouses Through a Limited Liability Company Does not Qualify for the Election

How to Report Federal Income Tax as a Qualified Joint Venture (Including Self-employment Tax)

In General, Spouses Do NOT Need an Employer Identification Number (EIN) for the Qualified Joint Venture

What to do if the Spouses Already Have an EIN for the Partnership

How to Handle Requests From the IRS for a Partnership Return from the Spouses for Tax Years for Which the Election is in Effect

If the Spouses Elect to be Treated as a Qualified Joint Venture, How Do They Report and Pay Federal Employment Taxes?

Duration that the Election Remains in Effect

Also, take a look at Husband and Wife Business.

For help from a California business attorney on these and other topics, call Mitchell A. Port at (310) 559.5259.