The “mom and pop” business may not be as common as it once was, but there are still plenty of married couples running businesses together. Up until 2006, unincorporated small businesses ran by a married couple were designated as partnerships for Federal tax purposes. Unfortunately, many married business owners may not have filed their taxes correctly as partnerships. To remedy this issue, the Small Business and Work Opportunity Tax Act of 2007 allows married business owners to elect to file as a “qualified joint venture” instead of filing as a partnership.
Filing As A Qualified Joint Venture
If a married business owner team has been successfully filing their taxes as a partnership, with each spouse receiving credit for Medicare and Social Security benefits, there is no need to become a qualified joint venture. However, the problem was that many of these couples were not filing their tax returns to reflect both couples on Schedule C, leaving one spouse with no credits toward Medicare or Social Security. The new election is meant to ensure that both spouses receive credit so that they are entitled to benefits in the future. To file this election, businesses must meet basic requirements such as:
- The business cannot be incorporated or an LLC
- The business partnership can only include the two spouses filing jointly together
- Both spouses participate in running the business venture
- Both spouses agree to elect not to file as a partnership
To take this election, spouses file jointly on a Form 1040, dividing the income, deductions and credits between them according to their respective interests in the business. This means each spouse will have their own Schedule C for most small businesses and possibly file separate Schedule F forms for self-employment taxes. By doing this, each person will get credit toward Medicare and Social Security benefits.
As a qualified joint venture, the business is treated as a sole proprietorship for tax purposes. Sole proprietors do not need an EIN to file their taxes; however, they made need one for filing for employment, excise, alcohol, firearm or tobacco returns. If the couple has an EIN already as a partnership, that EIN cannot be used for filing a qualified joint venture. If they need an EIN for other purposes, they should acquire one as a sole proprietor by requesting one using the Form SS-4.
For some married business owners, electing to file as a qualified joint venture can be easier than filing as a partnership and ensure that both spouses receive credit toward their Social Security retirement benefits and Medicare. To learn more about filing under this election, visit IRS.gov.
