Very often, owning a business involves your significant other. I don’t just mean the moral support he or she provides, the countless hours spent listening to your plan in the early days, your problems as you carry it out, and the ongoing day-to-day trials and tribulations that come with owning your own business. All that will never go away, and you’ll always need a good sounding board to keep you sane.
What is a Partnership?
I’m actually talking about a partnership here, where both spouses participate and share in the running of the business, as well as the profit or loss that results. That’s actually called a partnership, and it means you share as equals everything about the business. No formal agreement is necessary, it’s just how you view your business, what’s expected of each partner, and how you have decided between you to run things. Sometimes partners contribute in different ways: maybe one has all the money but the other one does all the work. Seems like a match made in heaven but if you have any experience in this type of thing it’s actually a hellish arrangement further down the line. Lots of resentment and such, but that’s another topic!
A partnership is a business relationship that’s not a corporation but not a sole proprietorship either. Unlike a corporation, a partnership doesn’t pay income tax but rather passes through it’s profit or loss to the partners. The partners will include income from the partnership on their 1040 tax returns.
What is a Qualified Joint Venture?
If your partnership is husband and wife, and you like to file your taxes with the status of Married Filing Jointly, then you can become a Qualified Joint Venture if you want. If you do this, you won’t have to file IRS Form 1065. Just one less IRS tax form to file is reason enough to elect to become a Qualified Joint Venture.
Filing Taxes for Partnerships: IRS Form 1065
As partners, one thing you’ll have to learn to do is file IRS Form 1065. That’s the tax return of a partnership. It’s structured like any other federal income tax return: income first, then deductions, a few Schedules and you’re done. If you keep good records this won’t be a big hassle to fill out and submit.
Here’s a link to IRS Form 1065 on the IRS website…the only place you should be getting tax forms.