Husband and wife operating a business may no longer be partners

Husband and wife operating a business may no longer be partners

Husband and wife operating a business together may no longer be partners.

Often when a business is started family members, namely husband and wife, operate the business and this may seem to be advantageous however the business entity would be treated as a partnership unless an important decision is made by the two partners. The business entity may no longer be a general partnership for federal tax purposes but a qualified joint venture whose only members are husband and wife involved in the business, they both materially participate in the trade or business and both spouses have elected to have the provision apply.

Under this provision, a qualified joint venture conducted by a husband and wife who file a joint return is not treated as a partnership for federal tax purposes. All items of income, gain, loss, deduction and credit are divided between the spouses in accordance with their respective interest in the venture. Each spouse takes into account his or her respective share of these items as a sole proprietor. Each spouse would account for his or her respective share on the appropriate business form, such as Schedule C. For purposes of determining net earnings from self-employment, each spouse's share of income or loss from a qualified joint venture is taken into account. The amount of taxes owed will not increase however it gives each spouse credit for social security upon which retirement benefits are computed. However in the absence of this provision and if the business owners do not want to have the business entity to be treated as a general partnership or a qualified joint venture one spouse may be considered an employee if there is an employee/employer type of relationship mainly one spouse substantially controls the business in terms of management decisions and the other spouse in under the direction of the first spouse. With such a relationship payroll taxes apply to the wages paid to the spouse who is treated as an employee with the exemption of unemployment insurance tax. The decision to be treated as a general partnership or a qualified joint venture is an important one not only for the business entity but also for the business owners.

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