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Old 01-27-2013, 05:37 PM
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Sole proprietorship and 1099 conflict.

I started a small business, a sole proprietorship, and employed my wife as a bookkeeper and notary. On occasion my wife takes notary assignments where payment is made in her name, not the business name, and a 1099 will likely be be generated in her name. I would like to consider this income as part of my business and not be viewed as a partnership with my wife. Does her 1099 create issues with doing this? Thank You for your time.



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Old 01-27-2013, 08:34 PM
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“I started a small business, a sole proprietorship, and employed my wife as a bookkeeper and notary. On occasion my wife takes notary assignments where payment is made in her name, not the business name, and a 1099 will likely be be generated in her name.”===>UNLESS your biz is a SMLLC treated as qualified joint venture, (however, for tax purposes, your spouse can be allowed to work for your sole proprietorship without being classified as an EE or as a business partner. )as long as you hire your spouse as an EE, then, she is an EE;you need to issue her W2 and you will have to start paying payroll expenses such as social security and medicare. You will also have to deduct state and federal taxes and report all the payroll taxes when due. HOWEVER, an unincorporated business jointly owned by a married couple is generally classified as a partnership for Federal tax purposes and need to file the complicated form 1065. However, the IRS has recently ruled that if you are in a community property state, you can treat the husband and wife as one taxpayer for purposes of the SMLLC rules. A qualified joint venture is a joint venture that conducts a trade or business where the only members of the joint venture are a husband and wife who file a joint return, both spouses materially participate in the trade or business, and both spouses elect not to be treated as a partnership. A qualified joint venture, for purposes of this provision, includes only businesses that are owned and operated by spouses as co-owners, and not in the name of a state law entity (including a limited partnership or MMLLC I guess NOT SMLLC in community pty state). Note also that mere joint ownership of property that is not a trade or business does not qualify for the election. The spouses must share the items of income, gain, loss, deduction, and credit in accordance with each spouse's interest in the business. Only members are a husband and a wife filing a joint return, can elect not to be treated as a partnership for Federal tax purposes. It is a lot cheaper and it takes less time to file taxes with a Sch C/ Sch SE through your personal tax return than to file a partnership tax return, Sch SE and form1065. ALSO, each of you pays SECA tax for soc sec benefits for each spouse.
“ I would like to consider this income as part of my business and not be viewed as a partnership with my wife. “Does her 1099 create issues with doing this?”===>I guess it depends; as long as she is an EE, you need to issue her W2, NOT 1099; the 1099 income issued to her would be self-employment income to her....she would owe her own SECA tax on it and as said above, she needs to file her Sch C/Sch SE as long as the biz is treated as qualified joint venture;even it does not have to be a joint venture. The wife can work as a non-EE for her husband's business, if she goes in on her own schedule and does the bookkeeping then then as noted there would be 2 Sch C's, Sch C for you and another for her. The IRS has determined that in the case of spouses owning a partnership, they do not need to file as a partnership on Form 1065, with individual Sch K-1 forms. Generally, 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, Then, this to mean that community property spouses may file for jointly owned LLC on Sch C; if yu live in non-community pty state, then, your spouse needs to file Sch SE for FICA taxes , NOT SEC Atax and needs to report her income on Sch K-1 of 1065.so the K-1 sort of takes the place of a 1099 for your partnership).


Last edited by Wnhough : 01-27-2013 at 08:44 PM.


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