ELECTION FOR MARRIED COUPLES UNINCORPORATED BUSINESSES
An UNINCORPORATED business JOINTLY OWNED BY A MARRIED COUPLE is generally classified as a partnership for Federal Income Tax Purposes.
For tax years beginning after December 31, 2006, the tax law provides that a "qualified joint venture", whose only members are a married couple filing a joint income tax return, can ELECT not to be treated as a partnership for Federal tax purposes.
The election permits married co-owners to avoid filing a Partnership Income Tax Return (Form 1065).
Qualified Joint Venture (QJV) Defined
A QJV is a joint venture that conducts a trade or business where:
1-the only members of the joint venture are a married couple who file a joint tax return,
2-both spouses materially participate in the trade or business, and
3-both spouses elect not to be treated as a partnership.
4-only business that are owned and operated by spouses as co-owners, and not in the name of a state law entity (including a limited liability company or limited partnership).
5-where the spouses in fact do share the items of income, gain, loss, deduction, and credit in accordance with each spouse's interest in the business.
How To Make The Election To Be Treated As A QJV
Spouises make the election on a jointly filed Form 1040 by dividing all items of income, gain, loss, deduction, and credit between them in accordance with each spouse's respective interest in the joint venture, and each spouse filing with Form 1040 a separate Schedule C and, if otherwise required, a separate Schedule SE.
A business owned and operated by the spouses through a Limited Liability Company and or Limited PARTNERSHIP does NOT qualify for the election.
Again, only businesses that are owned and operated by spouses as co-owners (and not in the name of a state law entity) qualify for t he election.
How To Report Federal Income Tax As A QJV (Including Sel-Employment Tax)
Spouses electing QJV status are treated as sole proprietors for Federal tax purposes.
The spouses must share the businesses' income, gain, loss, deduction, and credit.
The spouses must take into account the items in accordance with each spouse's interest in the business.
The same allocation will apply for calculation self-employment tax if applicable.
Each spouse must file a separate Schedule C and a separate Schedule SE.
Employer Identification Number (EIN)
An EIN is not required for a sole proprietorship unless the sole proprietorship is required to file excise, employment, alcohol, tobacco, or firearm returns.
If you need an EIN, complete Form SS-4.
If you already have an EIN for a partnership, the EIN must remain with the partnership and cannot be used for the QJV.
Duration Of The Election
Once the election is made, it can only be revoked with the permission of the IRS.
The election remains in effect only as long as the spouses filig as a QJV continue to meet the requirements for filing the election.
If the spouses fail to meet the QJV requirements for a year, a new election will be necessary for an future year in which the spouses meet the requirements to be treated as a QJV.
In A Nutshell
Each spouse files a separate Schedule C and a separate Schedule SE on their jointly filed income tax return.
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