Under the provision of the Small Business and Work Opportunity Tax Act of 2007, a qualified joint venture by a married couple filing a joint return is not treated as a partnership for federal tax purposes. Income, gains, losses, deductions, and credits are divided between the spouses, depending on their interest in the business. Each spouse accounts for their share of these items as a sole proprietor.A qualified joint venture involves the conduct of a trade or business if:
- The only members of the joint venture are a married couple who file a joint tax return
- Both spouses materially participate in the trade or business
- Both spouses elect to have the provision apply, and the business is co-owned by both spouses
- The business isn’t held in the name of a state law entity, such as a partnership or limited liability company (LLC)
If one spouse is employed by the other (as an employee – not an equal business partner), then you’ll probably need to pay Social Security and Medicare taxes for them.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov[i]