Couple-Owned Businesses, Taxes, and the IRS

Does the IRS tax joint ventures as partnerships?

Ordinarily, the IRS does tax joint ventures as partnerships. However, Congress passed the Small Business and Work Opportunity Tax Act of 2007 in May of that year. As part of the Act, a qualifying joint venture owned and run by a married couple is to receive sole proprietor tax treatment instead. In order to qualify, your business must meet the following criteria:

• You cannot choose to form an entity such as a limited liability company or partnership.
• You and your spouse must equally own the business.
• You and your spouse must be the only members of the joint venture.
• You and your spouse must file your personal income taxes as married joint.
• You must both agree to apply this provision to your business.

This means that you and your spouse divide all gains, losses, income, credits, and deductions in accordance with your individual interests in the business. You will take income and losses into account when determining your net earnings as a self-employed taxpayer.

Taking advantage of this tax treatment allows each of you to earn credit for Social Security earnings. More often than not, it does not increase your tax obligations to use this option.

This may seem like a good idea, but other considerations could make it less of a benefit to your situation. As is the case with nearly every tax rule, exceptions exist. If you fail to gain an understanding of both the pros and cons before making a decision, it could end up adversely affecting you and your business.

Contact Our Office

It may serve your best interests to schedule a consultation with a tax attorney who can answer your questions and provide advice regarding your next steps. If you live in Missouri or Tennessee, contact one of our our offices online today or give us a call: Ste. Genevieve, (573)-883-3056; St. Louis, (314)-260-6120; Nashville, (615)-733-8168; and San Antonio, (726)-202-1300.