Published on: February 17, 2021

Are You in Business With Your Spouse? Here Are the Tax Benefits of Making It a Qualified Joint Venture

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    Starting a business with your spouse can be an adventure, and taxes sometimes feel like they’re one of its biggest challenges. Setting up the business as a qualified joint venture (QJV) might be the best way to simplify your taxes, so they don’t overshadow what you’re trying to build. 

    There are pros and cons to any tax decision, of course, but setting up your business as a QJV can save time and money by letting you report the income on your joint income tax return. This guide will walk you through how to form a QJV, how to file business taxes, and whether it’s the right business election for you and your spouse.

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    What Is a Qualified Joint Venture?

    A qualified joint venture is a term the Internal Revenue Service (IRS) uses to describe “a joint venture that conducts a trade or business where (1) the only members of the joint venture are a married couple who file a joint return, (2) both spouses materially participate in the trade or business, and (3) both spouses elect not to be treated as a partnership.” 

    That simply means that a QJV is a business owned by two spouses that grants the business a special tax-filing option. The IRS designed QJVs specifically for married couples who own a business together to be able to file a joint married tax return and separate Schedule C forms to report profits and losses (instead of filing the much more complicated partnership return forms that other types of business partnerships have to prepare).

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    Benefits of Starting a Qualified Joint Venture

    A QJV allows a married couple with a business they run together to file as joint sole proprietors of the business instead of as a partnership. That’s an important distinction because:

    That’s a lot easier than having to file an intricate partnership return. A QJV typically takes 52 hours to file taxes, which costs about $470. That’s nothing to sneeze at, but compare it to a regular business partnership which requires about 322 hours/$4,870 to file its taxes. 

    Another advantage of the QJV is that both spouses can receive Social Security and Medicare credits for business profits. Spouses must also file Schedule SE to pay self-employment taxes on their share of profits, but those are added to the individuals’ Social Security/Medicare eligibility and benefits. 

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    Requirements for Starting a Qualified Joint Venture

    Your business must meet a few requirements to be eligible for a QJV. First, both spouses must materially participate in the business operations by meeting one of these standards for the previous year: 

    1. You worked at the activity for more than 500 hours.
    2. You worked more than any other owner or worker. 
    3. You worked more than 100 hours and at least as much as anyone else.
    4. You worked in several activities, each for longer than 100 hours, with all hours totaling more than 500.
    5. You materially participated for at least five of the last 10 years.
    6. The activity is a personal service in which you materially participated for any three prior tax years.
    7. You worked regularly, continuously, and substantially in the activity for at least 100 hours, paid no one to manage it, and had no one spend more time managing it than you. 

    In addition:

    Talking to a qualified tax attorney can help you find answers to any questions you have and figure out if your business is eligible for a QJV.

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    How to File Qualified Joint Venture Taxes

    Spouses don’t have to file any IRS forms to designate their business as a QJV, unlike an LLC that chooses to be treated as a corporation. A QJV is not a legal business type since it doesn’t require formation at the state level. The spouses simply file a joint income tax return as if each were operating a separate business with separate Schedule C’s. 

    That means the couple’s income tax filing should look like this:

    Each spouse can use their Social Security number when filing unless the business has employees. In which case, the business must apply for an Employer Identification Number (EIN). An EIN might also be required for QJVs that relate to excise tax or deal in alcohol, tobacco, and firearms.

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    Does a Married Couple That Owns an LLC Qualify for the QJV Election?

    An LLC usually cannot qualify as a QJV — the IRS specifically says that an LLC may not elect QJV status. It may be able to if the LLC is in a community property state, though, under Rev. Proc. 2002-69, which allows an LLC to receive the same tax treatment as a QJV. 

    Community property states are: 

    *Note: Joint ownership of property that isn’t a trade or business doesn’t qualify for QJV election. 

    In these states, spouses jointly own property, assets, income, and up to $100,000 in debts. This applies to any businesses started during the marriage as well, creating a tax status that’s similar to the QJV.

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    Contact a Qualified Tax Attorney With Questions on Starting a QJV

    Qualified joint ventures are one way the IRS has tried to make starting a small family business more accessible. They can simplify your tax filings, but as with starting any business, the logistics of tax filing may still be confusing and convoluted. The experienced tax attorneys at Silver Tax Group can walk you through the process and make it easy. If you have questions about qualified joint ventures, contact Silver Tax Group today to speak with an expert tax attorney.

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