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 also specifically 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).
- 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.
Also Known As: Husband-wife business
Examples:
Jim and Sally are the only members of a limited liability company. 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.
