A taxpayer and spouse may elect to report the business income from an unincorporated business on their Schedule C as a joint venture instead of reporting this business activity as a partnership for federal tax purposes. This allows a married couple operating a business to avoid filing a separate partnership return (Form 1065) or even obtaining an Employer Identification Number. Instead, the married couple can report all of their business activity from their unincorporated business on their personal tax return (Form 1040, Schedule C).
Because a Limited Liability Company (LLC) is an entity that is created under state law to allow its members/owners to operate a business in the name of the LLC, it cannot be treated as a qualified joint venture even when the owners of the LLC are married couple. Only a single member Limited Liability Company can file on a Schedule C and not a LLC owned by a taxpayer and spouse.
A business is consider a qualified joint venture if all of the following apply:
- The only owners of the business are the taxpayer and spouse,
- BOTH spouses materially participate in the trade or business,
- A joint return is filed for the tax year, and
- BOTH spouses elect to have the provision apply.
In order to properly calculate each individual’s share of income and expenses, the IRS requires that the taxpayer and spouse file separate Schedule C’s and Schedule SE’s.
To enter a Joint Venture into the program from the Main Menu of the Tax Return, (Form 1040):
- Select Income
- Select Business Income/Loss (Sch C, C-EZ, 1099MISC
- Select ‘NEW’ and chose Qualified Joint Venture
A message will be provided that sets forth all of the requirements for a joint venture which the preparer will acknowledge by selecting ‘YES’
A separate Schedule C and Schedule SE will automatically be created allocating 50% of the income and expenses to each spouse. If the ownership and participation is anything other than 50/50, separate Schedule C’s will need to be prepared for the taxpayer and spouse and it would not be considered a qualified joint venture.
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