How Do I Complete a Schedule C for a Husband-Wife Partnership?

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A husband-wife partnership is a special type of business, and as such, it can file business taxes a little differently than other types of partnerships. 

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.

Key Takeaways

  • A qualified joint venture is a business type exclusive to married couples who are the only partners in a business that isn't a corporation, and both partners actively participate in the business.
  • Participants in a qualified joint venture must fill out their own Schedule C.
  • When filling out a Schedule C, spouses need to divide up the business's income, expenses, and profit proportionate to each spouse's level of activity in the business.
  • The IRS considers spouses who elect a qualified joint venture as sole proprietors.


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.

Note

If you and your spouse elect to make your business a qualified joint venture, the IRS will consider you sole proprietors.

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.

Note

Once a couple elects to be a qualified joint venture, any partnership status immediately ends with the taxable year preceding the year the couple elects qualified joint venture status.

Frequently Asked Questions (FAQs)

What are the benefits of a qualified joint venture?

One of the main benefits of a qualified joint venture is that filing taxes is an easier process than if the business were a partnership.

Is an LLC a qualified joint venture?

No. According to the IRS' rules, spouses who own and operate a business through a limited liability company cannot elect qualified joint venture status.

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Sources
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. IRS. "About Form 1065, U.S. Return of Partnership Income."

  2. IRS. "Married Couples in Business."

  3. IRS. "Election for Married Couples Unincorporated Businesses."

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