Posted by Larry/Ca on 11/19/06 4:53pm
Msg #161149

Husband and Wife NSA's

I've been reading the tax instructions for filing this year and my understanding now is that we must file form 1065 (U.S. Return of Partnership Income) as we both participate in this business and share the income and liabilities of this business. Is this how other husband and wife teams handle the income from this business? Is it within the tax law for one party to claim their income as a sole propriator and report the income on schedule 'C'?

Reply by Roger_OH on 11/19/06 5:32pm
Msg #161161

There are a number of variables that could apply here. How is your business name registered with the state? Is it a sole proprietorship, an LLC, S Corp, or partnership? Is one spouse considered an employee of the other? Perhaps it's best for you to file separately? Have you been paying your taxes quarterly? Have you been taking the exemption for SE taxes? These and other considerations specific to your situation need to be addressed by a good CPA who is familiar with small businesses; don't go by the random responses you may get from the boards. It's well worth the investment and is deductible as a business expense.

John/NorCa is a tax guy and is a good resource for for your questions as he deals with notary-specific situations.

Reply by Larry/Ca on 11/19/06 6:55pm
Msg #161168

Roger, thanks for the....

input although I do think that I need to see a tax guy for the first time in my life. Our business is registered with the county as both of us as owners, as indviduals-Husband and Wife. It probably should have been as 'a general partnership'. This came up as I was attempting to apply for an EIN and I didn't know how to answer the question as to what type of enity this buiness was. I need to get this straightened out before the end of December. Hopefully Turbo-Tax will guide me through the tax filing. I was curious as to how other husband and wife teams filed.

Reply by Debbietax_CA on 11/19/06 7:09pm
Msg #161169

Re: Roger, thanks for the....

Per IRS Publication 334 page 3, (Tax Guide for Small Business) "If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement." This means you should file a form 1065, Partnership tax return instead of a Sch. C for the business, and then issue K-1s to yourself to account for any income or loss from the business. It is possible to consider one of you as an employee, but then you need to be filing and paying employment taxes for the employee, and in CA that also means paying worker's comp and unemployment on the employee. Definitely a lot simpler to file a partnership return. It is very common to file a partnership return for a husband and wife business, but I don't think the basic version of Turbo-tax will help you much. The business version might.

Reply by Larry/Ca on 11/19/06 9:08pm
Msg #161173

Thanks Debbie that is ....

what I thought after reading the publication from IRS. I really don't want to get into the employer/employee situation. I will file for an EIN as a partnership and do much reading on the instructions for filing Form 1065. I am really hoping that one of the Turbo-Tax softwares cover the filing for a partnership as I have been using them for years and find it easier to follow along than trying to understand all the instructions from IRS.

Thanks again, Larry

Reply by KimK/pa on 11/19/06 5:35pm
Msg #161162

When a husband and wife participate in a business and equally share the expenses and income then it usually is considered a partnership. Since you live in a community property state there are other conditions in your case. I would advise anyone living in a community property state to talk to a tax professional.
It is possible for a married couple to have one spouse owning the business and the other spouse as an employee and still be considered a sole proprietorship.
Kim