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Qualified Joint Venture

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Definition:

A qualified joint venture describes a special tax situation in which a husband and wife jointly running a business that is not a corporation may qualify to file as a sole proprietorship rather than a partnership. The IRS has determined that in the case of spouses owning a partnership, they do not need to file as a partnership on Form 1065, with individual K-1 forms.

Here are the details:

  • The spouses own a business that is not a corporation. The IRS designates that if all of these circumstances are met, you can elect to file as a qualified joint venture instead of a partnership. The IRS specifically excludes spouses in a "state law entity" (including a limited liability company or limited liability partnership). So if you have an LLC, you cannot use the qualified joint venture election (with the exception that an LLC in a community property state may be allowed to be a QJV).
  • To qualify, the spouses must share the items of income, gain, loss, deduction, and credit in accordance with each spouse's interest in the business.
  • The spouses must be the only partners and both spouses must materially participate in the business. The respective shares in the business are determined by the partnership agreement.
  • Both spouses file a separate Schedule C, showing that person's share of the income, deductions, and any profits/losses.
  • Both spouses also file a separate Schedule SE, showing that person's self-employment income.
  • The election for a qualified joint venture stays in effect as long as the spouses meet the requirements.
  • If the business return was filed in the previous year as a partnership, the partnership is considered to have ended at the end of the previous year.

For more detailed information, read this IRS article about Qualified Joint Ventures.

Back to Questions and Answers About Qualified Joint Ventures

Also Known As: Husband-wife business
Examples:
Jim and Sally have a partnership. They both have a 50% membership in the company. They may file as a Sole Proprietorship by (1) each completing a Schedule C showing their share of income, deductions, and net income/loss, (2) each completing a Schedule SE showing their share of the self-employment taxes (Social Security and Medicare).

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