Husband Wife LLC: Everything You Need to Know
A husband wife LLC can be set up if you and your partner run a joint business and opt to be taxed as a joint venture instead of a partnership.3 min read
A husband wife LLC can be set up if you and your partner run a joint business and opt to be taxed as a joint venture instead of a partnership. This arrangement can help you build savings for retirement and/or get medical coverage.
Husband Wife LLC Filing Requirements
When filing as a husband wife LLC, you must disclose how much you earn. You do not need to fill out a form 1065. If you had already filled out Form 1065 the previous year, don't worry — the terms of the partnership will end the following year.
You do, however, have to fill out Form 8832 within 75 days of when you want to pay your taxes as a joint venture. You must include a copy of your partnership tax with this form. Couples who live in a community property state will run into challenges if trying to distribute property during a divorce.
For a business to qualify as a husband wife LLC, it must actively trade and not be just a joint venture. For this to take place, you must incorporate business loss and income according to each partner's contribution.
Making an Election
When making an election to be taxed as a qualified joint venture:
- Each partner is responsible for filing their own Schedule C, C-EZ, or F form.
- Each partner must enter their share of income or losses on each line of their Schedule C, C-EZ, or F.
- Each partner should ensure they file their own self-employment taxes.
Once you enter into this agreement, it can only be revoked by the IRS. The agreement remains bounding as long as both spouses follow the rules and regulations. If you don't meet the minimum requirements, an election will be held for every year that you do meet the necessary requirements.
Because each partner is responsible for filing their own taxes, they are not required to have an employer identification number (EIN). You will, however, need an EIN for filing employer and excise taxes. You can find full instructions for how to apply for an EIN on Form SS-4.
The Internal Revenue Service (IRS) provides more information about joint ventures. On its website you can search for qualified joint venture and then select husband and wife unincorporated businesses.
Spouses with real estate or rental property should not include this in self-employment net earnings. Instead, it should be deducted as self-employment tax. If you decide to include your rental property in the joint venture, you should indicate your income and losses on Schedule E
Congress set straight the issue of complexity of residency issues. Starting in 2007, any couple, whether living in a community property estate or not, can decide whether they want to be considered as a single entity, with each one responsible for filing their own taxes.
In doing so, the couple can note their business income and deductions on each one's Schedule C or SE. This ensures both spouses get their individual Social Security statuses.
Can a Spouse Run a Business as a Sole Proprietor?
Yes. Either spouse can take charge of the joint venture so that it will be treated as a sole proprietorship. If one spouse is in charge of the business, the other can work as an employee in the business.
When a spouse decides to file his or her taxes as a joint venture, they must each contribute losses, income, or deductions according to their contribution to the venture.
What Is a Joint Venture?
The Small Business and Work Opportunity Act of 2007 clearly defines a joint venture:
- The only members of the venture are husband and wife.
- Each partner can participate directly in the business.
Spouses can opt out of the joint venture after Dec 31, 2006. In this case, each partner will be responsible for remitting their own taxes. The revenue, losses, and deductions are divided equally according to each spouse's contribution to the business.
For a business to be considered a complete joint venture:
- Only husband and wife are allowed to run it.
- Both spouses must contribute equally to the joint venture.
- They must adhere to Code Sec. 761(f)(2).
There are other rules regarding self-employment that apply based on each spouse's contributions to the business. Each partner's earnings, losses, or deductions get taken into account when calculating their self-employment tax obligations.
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