Tax Minute

WORKING WITH YOUR SPOUSE

When two or more people carry on a trade or business together, they are automatically treated as a partnership for income tax purposes and must file a form 1065 partnership return each year. This includes a husband and wife who run a business together. However, spouses can elect not to treat this joint venture as a partnership by making a qualified joint venture election which will enable them to each file a separate schedule C on their individual income tax return. This can save them a substantial amount of money on tax preparation fees while costing them no additional taxes. This treatment is not available if the husband and wife have filed documentation with the secretary of state's office to be treated as a limited liability company or limited partnership. If one spouse owns the business and employs the other spouse, the paid wages are subject to income tax withholding and Social Security and Medicare tax, but not unemployment tax. If you employ your children that are under the age of 18 the payments are not subject to Social Security or Medicare tax regardless of if you file a joint schedule C or a partnership return with your spouse. Payments to your child under the age of 21 are also not subject to Federal unemployment tax. If you are operating a business with your spouse and have an accountant who is filing a partnership return and they have not gone over any of these rules with you I suggest you call me on the tax line for some additional tax advice.

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