Business Taxes: Employing Spouses – Business Partnership

Welcome to our Bullseye Tax Relief Blog! If you’re new to the site and this is the first blog post you’ve stumbled on, we recommend you get started at the beginning of our Business Taxes blog series here: Business Taxes: Employment Taxes.

In the Business Taxes blog post series, we’ve been discussing the different business taxes a business might encounter if they have employees. We started with the general, discussing the differences between W-2 employees and 1099 independent contractors, and have gradually gotten more specific, as we discuss other business tax elements associated with employing employees.

In our more recent posts, we’ve been discussing the tax responsibilities, paperwork and other requirements stipulated by the IRS associated with employing family members. In our first post on the topic, Business Taxes: Employing Family, we discussed the IRS’s requirements surrounding parents employing their children. After that, in our post Business Taxes: Employing Parents, we discussed the converse of that situation, going into detail about the different requirements associated with a child employing a parent. Finally, in our most recent blog post, Business Taxes: Employing Spouses, we discussed one of the potential scenarios that could arise when one spouse employs another. In this post, we’ll discuss another one of the possible scenarios when a spouse employs another: a business partnership.

Employment Taxes & The Spouse Business Partnership

As of February 26th, 2021, according to the IRS Page Married Couples in Business, “on May 25, 2007 the Small Business and Work Opportunity Tax Act of 2007 was signed into law and affect changes to the treatment of qualified joint ventures of married couples not treated as partnerships. The provision is effective for taxable years beginning after December 31, 2006.

The provision generally permits a qualified joint venture whose only members are a married couple filing a joint return not to be treated as a partnership for Federal tax purposes. 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).”

As you can see from the very last requirement, qualified joint ventures in this case do not include entities like a partnership or an LLC. Since this provision has been in effect since 2007, it’s likely that if your business falls into this category, your accountant has already guided you towards the correct set of actions. However, if this is new information and you might have filed tax returns for yourself, your business or your spouse incorrectly, you should give one of our tax resolutions specialists a call today to make sure everything is in order. Here at Bullseye Tax Relief, we offer a free consultation and transcript analysis for new clients, so you can learn your options risk-free. Call us today at (844) 582-3323!

Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/married-couples-in-business