How Do I Complete a Schedule C for a Husband-Wife Partnership?
What is a husband-wife partnership?
A husband-wife partnership is a special type of business, and as such it has the ability to file business taxes a little differently than other types of partnerships.
Partnerships must file income taxes on Form 1065. But a husband-wife partnership may be eligible to be considered as a qualified joint venture and to file using Schedule C, under certain circumstances. Note that in this case, each owner must file a separate Schedule C, dividing up all of the income and expenses.
Husband-wife partnerships for same-sex partners
As of June 2015, same-sex marriage is now legal in all 50 states. It's still not clear how the new law will affect spouses as business owners, both for federal and state income taxes and for self-employment taxes.
What is a qualified joint venture?
If you and your spouse are the sole partners in a partnership, you may be considered a qualified joint venture, if:
- you and your spouse are the only partners
- you are filing a joint personal tax return on Form 1040
- both of you materially participated in the partnership during the year. That is, you both were actively involved in the day-to-day operations of the business. If only one spouse was active in the business, this spouse may complete a Schedule C, but the other spouse who did not participate may not.
If all of these circumstances are met, you can elect to file as a qualified joint venture instead of a partnership.
The IRS allows the qualified joint venture option only for "unincorporated businesses." The IRS specifically excludes state law entities (that is, limited liability companies or limited liability partnerships) from filing as a qualified joint venture. So if you and your spouse own an LLC, you cannot make this election to be considered a qualified joint venture.
You must each file a separate Schedule C. First, allocate the income and expenses according to the membership percentage for each spouse, then each share is recorded on a separate Schedule C.
Filing as a joint venture: an example
- Each spouse has a 50% membership in a partnership which has an income of $100,000, expenses of $70,000, and profit of $30,000.
- A Schedule C is prepared for each spouse, showing $50,000 in income, $35,000 in expenses, and $15,000 in profit.
- The total profit of $30,000 is shown on Line 12 of Form 1040, with the two Schedule C forms as supporting documents.
Preparing Schedule C instead of a partnership return can save you time and money, but be certain that you qualify for this election. Check with your tax adviser before you file.
More information on Schedule C, including instructions on how to prepare, when you can use Schedule C-EZ, and more.
Disclaimer: This article and the information on this Guide Site is intended for general information only. The author is not a CPA, tax attorney, or Enrolled Agent. Consult with your tax professional for information relating to your specific situation.