While partnerships must file income taxes on Form 1065, a husband-wife partnership may be eligible to be considered as a qualified joint ventureand to file using Schedule C, under certain circumstances. Note that in this case, each owner must file a separate Schedule C, dividing up all of the income and expenses.
What Is a Qualified Joint Venture?
If you and your spouse are the sole partners in a partnership, you may be considered a qualified joint venture, if:
You and your spouse are the only partners You are filing a joint personal tax return on Form 1040 Both of you materially participated in the partnership during the year. That is, you both were actively involved in the day-to-day operations of the business. If only one spouse was active in the business, this spouse may complete a Schedule C, but the other spouse who did not participate may not.
If all of these circumstances are met, you can elect to file as a qualified joint venture instead of a partnership. The IRS allows the qualified joint venture option only for “unincorporated businesses.” The IRS specifically excludes state law entities (that is, limited liability companies or limited liability partnerships) from filing as a qualified joint venture. So, if you and your spouse own an LLC, you cannot file as a qualified joint venture. You must each file a separate Schedule C. First, allocate the income and expenses according to the membership percentage for each spouse, then each share is recorded on a separate Schedule C.
An Example of Filing a Schedule C as a Joint Venture
A married couple owns an interior decorating business. Each spouse has a 50% membership in the partnership. The business generates an income of $100,000 per year. Expenses are $70,000, which leaves the partnership with $30,000 of profit. Each spouse fills out their own Schedule C. Because the spouses participate in the business equally, the business’s income, expenses, and profit are split equally on Schedule C. In this case, the spouses would list their business income as $50,000, business expenses as $35,000, and profit at $15,000. When calculating your business income for your joint return, you’ll list $30,000, since that’s how much you and your spouse made together operating the business. Preparing Schedule C instead of a partnership return can save you time and money, but be certain that you qualify for this election. Check with your tax adviser before you file.
