Starting and Running a Business Owned and Operated by Spouses

Starting a business with the one you love and seeing it grow into a thing of success is rewarding. It doesn’t come without a unique set of challanges and rewards. New Life Tax Resolutions was started as a family run business. Two personal bits of advice and then on to the technicals.

  1. Know your personality types – By understanding each others strengths, you’re better able to identify areas where you compliment each other.
  2. Discuss your tolerance for risk –  Our main source of income is our business.  My wife tends to be less risk-averse than I am. We decided to take a “slow and steady” growth path refusing to use debt to finance growth. We reevaluate our views on tolerance for risk on a regular interval.

Now on to the IRS:

If you and your spouse jointly own and operate a business and share in the profits and losses, you may be partners in a partnership, whether or not you have a formal partnership agreement.  The partnership is considered the employer of any employees, and is liable for any employment taxes due on wages paid to its employees.

Exception—Qualified joint venture. 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 spouses filing a joint income tax return, can elect not to be treated as a partnership for federal tax purposes. A qualified joint venture conducts a trade or business where:

The only members of the joint venture are spouses who file a joint income tax return,

Both spouses materially participate (see Material participation in the Instructions for Schedule C (Form 1040), line G) in the trade or business (mere joint ownership of property isn’t enough),

Both spouses elect to not be treated as a partnership, and

The business is co-owned by both spouses and isn’t held in the name of a state law entity such as a partnership or limited liability company (LLC).

To make the election, all items of income, gain, loss, deduction, and credit must be divided between the spouses, in accordance with each spouse’s interest in the venture, and reported on separate Schedules C or F as sole proprietors. Each spouse must also file a separate Schedule SE to pay self-employment taxes, as applicable.

Spouses using the qualified joint venture rules are treated as sole proprietors for federal tax purposes and generally don’t need an EIN. If employment taxes are owed by the qualified joint venture, either spouse may report and pay the employment taxes due on the wages paid to the employees using the EIN of that spouse’s sole proprietorship. Generally, filing as a qualified joint venture won’t increase the spouses’ total tax owed on the joint income tax return. However, it gives each spouse credit for social security earnings on which retirement benefits are based and for Medicare coverage without filing a partnership return.

 

Exception—Community income. If you and your spouse wholly own an unincorporated business as community property under the community property laws of a state, foreign country, or U.S. possession, you can treat the business either as a sole proprietorship (of the spouse who carried on the business) or a partnership. You may still make an election to be taxed as a qualified joint venture instead of a partnership. See Exception—Qualified joint venture above.

Payments made to a parent employed by his or her child aren’t subject to FUTA tax, regardless of the type of services provided.

ABOUT OUR COMPANY: New Life Tax Resolution is built on the foundation of our Core Values, including commitment, trust and respect for our clients. Our goal is to provide every client with efficient, permanent relief from the stressful burden of tax debt. We don’t just want you to be free from debt, we want you to leave New Life Tax Resolution with the knowledge and tools you need to never find yourself in the same situation again.

Our company is uniquely poised to help with a variety of issues from bankruptcy to back taxes, audits, liens and levies, wage garnishments, and other issues.  It is possible to be free and clear of looming IRS issues. To see what programs, you may qualify for CLICK HERE.  If you are a phone person, you can call New Life Tax Resolution today at 407-287-6638 to set up a case review.

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About Patrick LeClaire

After 15 years in corporate finance and Tax Preparation, I formed a company as an Enrolled Agent. I insist on superior customer service and the highest standards available as I embark on a journey to resolve one case at a time at New Life Tax Resolution.