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Can My Husband-Wife Business Elect to be a Qualified Joint Venture?

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Question: Can My Husband-Wife Business Elect to be a Qualified Joint Venture?
A husband-wife business that is not a corporation may be able to elect to be a Qualified Joint Venture (QJV). As a QJV the business can take advantage of filing two Schedule C forms as part of the couple's personal tax return, instead of the more complicated partnership return.
Answer:

What is a Qualified Joint Venture (QJV)? What are the Criteria?
A qualified joint venture is a husband/wife business which is not a corporation and which elects to be treated as a disregarded entity (a sole proprietorship, basically) and which files taxes on two Schedule C forms (through their 1040), rather than filing as a partnership. To qualify:

  1. The husband and wife must be the only people in the business
  2. They must file a joint tax return
  3. They must both materially participate in the business during the year, and
  4. Both spouses must agree not to be treated as a partnership (in other words, both must file a Schedule C).

What's the Advantage of the QJV?
It is a lot cheaper and it takes less time to file taxes with a Schedule C through your personal tax return than to file a partnership tax return. You may feel more comfortable preparing the Schedule C yourself, but you will probably want a tax preparer to prepare the partnership return.

How is the Election as a QJV Made?
Basically, you just divide up the profits or losses and each spouse files a separate Schedule C showing his/her share. For example, if the business had a profit of $15,000 in 2009, and the spouses shared equally in the partnership, each would file a Schedule C showing 50% of the income and expenses and a profit of $7,500. The total profit from both Schedule C's would be reported on Line 12 of their Form 1040.

When Can a Husband-Wife LLC be a Qualifed Joint Venture?
The IRS states specifically that an LLC cannot elect to be a QJV. But the IRSsays that a husband-wife LLC in a community property state can make the decision to be taxed as either a partnership or a disregarded entity (that is,using two Schedule C forms).

What are the Community Property States?
All states have laws related to division of property, most commonly in a divorce; each state is either a "community property" or "equitable distribution" state. In community property states, all property acquired during the marriage is divided equally. Only nine states have community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin.

Check Your State Laws
Before you rush out and attempt to file your taxes as a QJV, be sure to check state laws, which might not allow you to make this election.

Disclaimer: I am not a CPA or qualified tax adviser or preparer. I have provided this general information to give you an understanding of this tax situation and so you can take it to your tax adviser. Please check with your tax preparer or tax adviser before making any tax decisions or filing a specific tax return.

For More Information, read this IRS article:
Election for Husband and Wife Unincorporated Businesses

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