In our most recent post, Business Taxes: Employing Spouses – Business Partnership, we began to discuss the relatively recent changes afforded to married couples not officially working together in a state entity like a partnership or a Limited Liability Corporation in the Small Business and Work Opportunity Tax Act of 2007.
For a quick recap, the requirements to qualify as a joint venture are as follows, according to the IRS Page Married Couples in Business (as of February 26th, 2021): “A qualified joint venture is a joint venture involving the conduct of a trade or business, if (1) the only members of the joint venture are a married couple who file a joint tax return, (2) both spouses materially participate in the trade or business, (3) both spouses elect to have the provision apply, and the business is co-owned by both spouses and (4) isn’t held in the name of a state law entity such as a partnership or limited liability company (LLC).”
Employment Taxes and The Benefits of a Qualified Joint Venture
For couples curious what they have to gain if they meet the requirements of a qualified joint venture, the same page, Married Couples in Business, as of February 26th, 2021, goes on to say that “under the provision, a qualified joint venture conducted by a married couple 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 interests in the venture. Each spouse takes into account his or her respective share of these items as a sole proprietor. Thus, it is anticipated that each spouse would account for his or her respective share on the appropriate 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 just as it is for Federal income tax purposes under the provision (i.e., in accordance with their respective interests in the venture).
“This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based. However, this may not be true if either spouse exceeds the social security tax limitation. Refer to Publication 334, Tax Guide for Small Business, for further information about self-employment taxes. For more information on qualified joint ventures, refer to Election for Married Couples Unincorporated Businesses.”
So as you’ve just learned, generally speaking, if your business partnership with your spouse meets the requirements of and files as a qualified joint venture, there are some benefits to be gained. More specifically, the qualified joint venture gives both spouses credit for social security earnings, rather than just one, which can help to increase retirement benefits in the long term.
Like the title says, in our next blog post, Business Taxes: Employing Spouses – One employed by another, we’ll discuss the tax implications associated with one spouse employing the other. Check back soon!