If you and your spouse run an unincorporated business together as the only two owners, the operation is generally treated as a partnership for tax purposes. In other words, you’re required to file a partnership tax return and otherwise comply with all the complicated federal income tax rules for partnerships.
Strategy: Elect to treat the business as a “qualified joint venture.” This avoids the hassles of being taxed as a partnership.
But this tax move isn’t for everyone. Watch out for a tax trap on employment taxes.
Here’s the whole story: The election to be treated as a joint venture is based on a little-noticed provision buried in the Small Business Opportunity Tax Act of 2007. (This provision generally went into effect for tax years after 2006.) As long as certain requirements are met (see below), the business won’t be treated as a partnership. Instead, each spouse’s share of the income and deductions from the busin...(register to read more)