It’s important, when spouses work together, that each spouse gets the social security and Medicare credit they deserve. It’s common for one spouse to file a Schedule C, claiming all income and expenses, when in fact, both spouses contributed equally to running their business.
The IRS generally requires married couples who run unincorporated businesses to file as partnerships. To limit the level of complexity, however, the IRS allows for the Qualified Joint Venture exception. This exception is available to married couples who:
1) file a joint return and are the only members of the venture.
2) materially participate in the business.
3) elect not to be treated as a partnership.
If you and your spouse qualify to file as a Qualified Joint Venture, you can each file a Schedule C. You’ll need to split the income and expenses according to each person’s interest in the business. For example, if both spouses were equally responsible and exerted the same level of control in the business it’s safe for each spouse to report 50% of the income and expenses on their respective Schedule Cs. You won’t necessarily pay more in taxes, but you will make sure each person’s social security and Medicare accounts are credited.
Note that the business must be co-owned by both spouses and must not be a state law entity. If you’ve registered the business with the state as an LLC, you no longer qualify as a Qualified Joint Venture and must file as a partnership. This involves filing Form 1065, in addition to Form 1040.
the Confident Taxpayer 