updated November 21, 2023 · 3min read
If you and your spouse are operating a business together, you should understand the advantages of being considered a qualified joint venture. This type of business entity can simplify your record keeping and tax filings.
Created to allow a simplified tax-filing procedure for a married couple operating a business, a qualified joint venture, as opposed to a general joint venture, is a special type of business partnership that can exist if the only two partners are spouses. It also alleviates the couple from having to maintain the records required of a partnership.
It is not uncommon for the Internal Revenue Service (IRS) to treat one type of business as if it were another type of business. For example, a limited liability company (LLC) can choose to be treated as if it were a corporation. With a qualified joint venture, the IRS treats a spousal partnership as if each spouse were operating a separate sole proprietorship.
To create a qualified joint venture, you and your spouse simply start a business together, which, because two people own the business, legally makes it a general partnership. You do not form a limited partnership, limited liability partnership, limited liability limited partnership, limited liability company (LLC), or a corporation. With a limited exception relating to LLCs, if you form any of these other types of entities, your business is not a qualified joint venture.
In most cases, if the spouses form an LLC, they need to file either as a partnership or as a corporation. However, if the LLC was formed in a community property state, the spouses may file as a qualified joint venture, in which case you file your federal taxes as indicated below.
A partnership is formed when two or more persons operate a business together, unless they form a limited partnership, limited liability company (LLC), or corporation. The IRS requires a partnership to file a Return of Partnership Income (Form 1065), which indicates the amount of profit allocated to each partner, who then reports their share of the profit on their individual income tax return.
However, a business that is a qualified joint venture avoids being required to file a partnership tax return. Instead, the spouses simply indicate the profit on their joint income tax return.
In order to qualify as a qualified joint venture, the business must meet the following requirements:
Unlike an LLC choosing to be treated as a corporation, there is no IRS form to be filed to elect qualified joint venture status. Instead, the spouses file a joint income tax return as if each were operating a separate business.
If qualified joint venture status is used, the couple files the following federal tax forms:
The spouses each use their own Social Security numbers, unless the business has one or more employees, in which case the business must obtain an employer identification number (EIN). An EIN may also be required for certain types of businesses that are required to file tax returns relating to excise tax or that deal in alcohol, tobacco, and firearms.
You and your spouse can simplify your business tax filing by taking advantage of the qualified joint venture. However, you should compare the income and self-employment taxes that will be due with other taxation options. Depending upon your situation, the tax liability might be lower if you have one spouse as the owner and the other as an employee, or if you form an LLC or a corporation.
by Edward A. Haman, Esq.
Edward A. Haman is a freelance writer, who is the author of numerous self-help legal books. He has practiced law in H...
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