Learn How a Qualified Joint Venture Works
A qualified joint venture (QJV) describes a special tax situation in which a husband and wife jointly running a business that is not a corporation may qualify to file as a sole proprietorship rather than a partnership. The IRS has determined that in the case of spouses owning a partnership, they do not need to file as a partnership on Form 1065, with individual K-1 forms.
The Qualified Joint Venture and Same-sex Spouses
Since June 2015, same-sex marriage is legal in all 50 states.
It is not yet clear how the IRS will consider same-sex marriages in the context of the qualified joint venture. Read this article on going into business with your spouse to get more information.
Details on How the Qualified Joint Venture Works
NOTE: The Qualified Joint Venture is a complicated subject. Before you attempt to file taxes for a two-spouse business, discuss with your professional tax advisor or call the IRS.
- The spouses own a business that is not a corporation. The IRS designates that if all of these circumstances are met, you can elect to file as a qualified joint venture instead of a partnership. The IRS specifically excludes spouses in a "state law entity" (including a limited liability company or limited liability partnership). So if you have an LLC, you cannot use the qualified joint venture election (with the exception that an LLC in a community property state may be allowed to be a QJV).
- To qualify, the spouses must share the items of income, gain, loss, deduction, and credit in accordance with each spouse's interest in the business.
- The spouses must be the only partners and both spouses must materially participate in the business. The respective shares in the business are determined by the partnership agreement.
- Both spouses file a separate Schedule C, showing that person's share of the income, deductions, and any profits/losses.
- Both spouses also file a separate Schedule SE, showing that person's self-employment income.
- The election for a qualified joint venture stays in effect as long as the spouses meet the requirements.
- If the business return was filed in the previous year as a partnership, the partnership is considered to have ended at the end of the previous year.
An Example of How a QJV Works
Jim and Sally are spouses who co-own a business organized as a partnership. They both have a 50% membership in the company. They may file as a Sole Proprietorship by (1) each completing a Schedule C showing their share of income, deductions, and net income/loss, (2) each completing a Schedule SE showing their share of the self-employment taxes (Social Security and Medicare).
Other Tax Considerations in the Qualified Joint Venture
- Employment Taxes. One of the spouses must be designated to be responsible for reporting and paying employment taxes, including income tax withholding, FICA taxes (Social Security and Medicare), and unemployment taxes, Note that this is a personal responsibility, and failure to pay these taxes can result in individual liability.
- Employer ID Number (EIN): Since each spouse in a QJV is treated as a sole proprietor, the IRS says they can use their Social Security Numbers as identifiers unless the EIN is required for other purposes.
Disclaimer: The information in this article and on this site are not intended to be tax or legal advice. Every business situation is different, and regulations and laws change frequently. Consult with your tax and legal advisors before making any business decisions.