Do I Combine or Split Schedule C & SE? Married Couple LLC in Community Property State

[Taxathrone]

Spouse and I co-own and operate an unincorporated LLC as community property in a community property state and treat the business as a disregarded entity (so it can go on our joint return).

The Instructions for Schedule C (under "Community Income," here) says if this is the case "you can treat your wholly owned, unincorporated business as a sole proprietorship, instead of a partnership... Report your income and deductions as follows...

• If only one spouse participates in the business, all of the income from that business is the self-employment earnings of the spouse who carried on the business.

• If both spouses participate, the income and deductions are allocated to the spouses based on their distributive shares."

...It goes on with bullets if it's a partnership or Qualified Joint Venture (QJV), but neither of those are applicable for a disregarded entity that is a LLC.

So how do I allocate the income and deductions of our LLC based on our 50 / 50 shares on our joint tax return?

Do we complete a single Schedule C in one of our names or two Schedule Cs (one for each of us, with the income and expenses split on them)? (Or is either way accepted by the IRS?)

Do we complete a single Schedule SE or two Schedule SEs (with income from the business split on them)?

The IRS indicates that a single Schedule C should be filed in one of the spouses name's (and doesn't say how to treat the Schedule SEs if both spouses participate in the business, which I need to know), but TurboTax 2020 Home & Business says to "split all of your business income and expenses according to ownership percentages" and file a Schedule C and SE for each spouse.

What is correct?

[Mike9241]

since you live in a community property state

If you and your spouse each materially participate as the only members of a jointly owned and operated business and you file a joint return for the tax year, you can accept the IRS' default designation of your LLC as a "disregarded entity." This means, that given the particulars as stated the IRS designates your business as a Qualified Joint Venture. You both are treated as Sole Proprietors. If a married couple who file a joint tax return elect to conduct their business activities as a qualified joint venture, (a trade or business entity in which the husband and wife materially participate in such venture), the spouses must divide the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture (ie each file a schedule C. with 2 schedules C there will be a schedule SE for each

if both spouses do not materially participate then your LLC is required to file a partnership return. 

For purposes of the passive activity rules, you materially participated in the operation of this trade or business activity during 2020 if you met any of the following seven tests.
1. You participated in the activity for more than 500 hours during the tax year.
2. Your participation in the activity for the tax year was substantially all of the participation in the activity of all individuals (including individuals who did not own any interest in the activity) for the tax year.
3. You participated in the activity for more than 100 hours during the tax year, and you participated at least as much as any other person for the tax year. This includes individuals who did not own any interest in the activity.
4. The activity is a significant participation activity for the tax year, and you participated in all significant participation activities for more than 500 hours during the year. An activity is a “significant participation activity” if it involves the conduct of a trade or business, you participated in the activity for more than 100 hours during the tax year, and you did not materially participate under any of the material participation tests (other than this test 4).
5. You materially participated in the activity for any 5 of the prior 10 tax years.
6. The activity is a personal service activity in which you materially participated for any 3 prior tax years. A personal service activity is an activity that involves performing personal services in the fields of health, law, engineering, architecture, accounting, actuarial science, performing arts, consulting, or any other trade or business in which capital is not a material income-producing factor.
7. Based on all the facts and circumstances, you participated in the activity on a regular, continuous, and substantial basis for more than 100 hours during the tax year. Your participation in managing the activity does not count in determining if you meet this test if any person (except you) (a) received compensation for performing management services in connection with the activity, or (b) spent more hours during the tax year than you spent performing management services in connection with the activity (regardless of whether the person was compensated for the services).

[Taxathrone]

Thanks for the reply, @Mike9241, but the IRS specifically states that LLCs (and other state law entities) do not qualify for the election to be treated as a Qualified Joint Venture. See here:

A Business Owned and Operated by the Spouses through a Limited Liability Company Does Not Qualify for the Election

Only businesses that are owned and operated by spouses as co-owners (and not in the name of a state law entity) qualify for the election. See Rev. Proc. 2002-69, 2002-2 C.B. 831, for special rules applicable to married couple state law entities in community property states.

[Critter-3]

Answered in your other posts :   https://ttlc.intuit.com/community/user/viewprofilepage/user-id/3101632