Qualified Joint Venture LLC: Everything You Need to Know
Qualified joint venture LLC is a tax classification created by the Internal Revenue Service (IRS).3 min read
2. Advantages to Filing as a Qualified Joint Venture
3. Employer Identification Numbers
Qualified joint venture LLC is tax classification created by the Internal Revenue Service (IRS). It is a special arrangement that allows a husband-wife-owned business to file its business taxes as a sole proprietorship as opposed to a partnership. This makes tax filing less complicated and time-consuming.
Make sure to note that the qualified joint venture tax classification is not a legal business type.
Under federal tax rules, a husband-wife-owned unincorporated business is a partnership. The IRS taxes multimember limited liability companies as partnerships by default.
If you own a limited liability company with your spouse, the IRS will let you file a single tax return. This cuts down on the paperwork and accounting fees. If your business is not a corporation, a limited liability company, or a limited partnership, you can take advantage of the qualified joint venture designation.
Other terms may be used that imply a qualified joint venture, such as “married couple single-member LLC” or “husband and wife single-member LLC.” These terms make sense in community property states where, for federal tax purposes, the husband and wife are treated as a single unit.
Requirements for a Qualified Joint Venture
There are specific requirements that must be fulfilled for a business to file taxes as a qualified joint venture:
- It cannot be either a C corporation or an S corporation.
- It can only be a general partnership.
- Unless it is in a community property state, it cannot be an LLC.
- It cannot earn most of its revenue from passive income (e.g., owning rental properties).
- The only members are a husband and wife.
- The husband and wife file a joint tax return.
- They both participate materially in the business.
- They choose not to be considered a partnership for tax purposes.
In a qualified joint venture, each spouse splits the profits or losses of their partnership. They file an individual Schedule C for their share of the income and expenses as sole proprietors. This is in addition to filing their own individual Schedule SE.
In a community property state, a married couple can form an LLC and be a qualified joint venture if:
- The husband and wife are the sole owners of the business as community property according to the laws of a state, a foreign country, or a possession of the United States.
- Only the husband or wife (or both) can be regarded as an owner for federal tax purposes.
- The business is not treated as a corporation.
Advantages to Filing as a Qualified Joint Venture
- Save time and money filing taxes: With a partnership, the business has to file a return and then for tax purposes divide the income between all the partners. Even when there are only two people in the partnership, this can involve hiring a tax specialist. With a qualified joint venture, each spouse simply files their own Schedule C business tax form.
- Social Security/Medicare credits: With a qualified joint venture, each spouse pays self-employment tax on their share of the profits. They both then receive Social Security/Medicare credits since those taxes add to their eligibility and benefits.
- The couple can file taxes as joint sole proprietors: This entitles them to social security benefits and credits. They cannot do this, however, if they incorporate as, for example, an LLC. Unless the couple lives in a community property state, their incorporated legal entity must be treated as a partnership.
Employer Identification Numbers
If a married couple-owned business files taxes as a qualified joint venture, it is effectively filing as a sole proprietorship. This means the couple does not need to have a separate Employer Identification Number. As sole proprietors, they can use their personal Social Security numbers on their Schedule C forms. This is not the case, however, if the business needs to file excise, employment, alcohol, tobacco, or firearms returns.
If the business used to be a partnership, the couple should reserve the partnership's Employer Identification Number for the business. Each spouse should obtain individual Employer Identification Numbers and keep the business Employer Identification Number in the event the couple needs it in the future (e.g., if the business is no longer able to file as a qualified joint venture).
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