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Starting a Business With Your Spouse

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Starting a Business With Your Spouse

By JamieD
Published: August 26, 2010 Updated: February 10, 2011

Starting a business with your spouse can be a convenient and cost effective business venture - or it can be a disastrous, money losing battle. It takes great planning, a lot of trust, and excellent communication to make sure your marriage works well with your work and vice versa. Setting the personal implications aside, it's also important to remember that going into business with your spouse has legal implications. Follow this quick guide to make sure you and your spouse are in compliance with the necessary requirements.

Most businesses run by a married couple are considered partnerships...

For Federal tax purposes, an unincorporated business, jointly owned by a married couple, is classified as a partnership. This classification stands on the assumption that each spouse has an equal say and share of business affairs. This includes an equal voice as well as equal operational and capital contributions. In this case, business income should be reported on Form 1065, U.S. Return of Partnership Income.

You may choose to not to be treated as a partnership...

To avoid filing partnership tax returns, married co-owners can chose to exercise their rights to the Small Business and Work Opportunity Tax Act. Under this law, the joint venture will be treated as sole proprietorships for Federal Tax Purposes.

For tax years after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 allows 'qualified joint ventures,' of married partners filing a joint return, to elect not to be treated as a partnership for Federal tax purposes. Under these provisions, each spouse must separately report a share of all of the businesses' items of income, gain, loss, deduction, and credit and will therefore both receive credit for social security and Medicare.

For purposes of this situation, a 'qualified joint venture' is one that operates a trade or business under three provisions:

  1. A husband and wife are the ONLY members of the joint venture and they file a joint return
  2. Each spouse materially participates in the business
  3. Both spouses agree not to be treated as a partnership

Only businesses that are owned and operated by spouses as co-owners are eligible for this provision. They can not be operated in the name of a state law entity such as general or limited partnerships of limited liability companies.

If you choose to be treated as a qualified joint venture you must...

  1. Elect this option on a jointly filed Form 1040.
  2. On this form, divide all items of income, gain, loss, deduction, and credit between each spouse in accordance with their individual roles in the joint venture
  3. Each spouse must file a separate Schedule C Form, Profit of Loss from Business Sole Proprietorship or Schedule F Form, Profit of Loss From Farming
  4. File separate Schedule SE Forms, Self-Employment Tax according to your individual interests in the venture. Self-Employment is generally required if your net earnings were more than $400. For more information on if the Self-Employment Tax applies to you, check out the IRS Guide to Self-Employment Tax.

The tax and legal implications of starting a business with your spouse can be a complicated thing. The best advice you could get will come from a small business expert in your area or a lawyer.

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I'm not yet married, but I run a lifeguard certification and training business. If I were to marry, would this situation apply to us, even if she wasn't a lifeguard, herself? Thank you for the information, Tyler
Good advice. I have a new venture Im thinking on starting and Ill have my work some in the business, i wasnt even thinking about making her a partner, just putting her on a part time salary, but i wonder if making her a partner woudl be better for tax purposes?  Good question for my cpa.  Thanks,

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