Does a husband wife business split expenses entered in Self-Employed, or do each enter totals & turbotax figures it out?

[Critter]

What state are you in ?   Did you set up a partnership with the IRS and get an EIN for it ? 

[karmcgowan]

Spoiler

We're in Arizona, have an EIN, and an LLC - but as a married couple, we file as 1 entity = a sole proprietorship.  I'm just trying to figure out the Turbotax instructional details. They always say enter this or that, but never address more exact details depending on the situation. Then you must resort to this. So we use their Self-Employed for our business. He takes care of some things, I take care of others. Many things are shared expenses. I figure Turbo tax wants the entries split between us either 50-50, or exactly as applies to each of us. But I wanted to make sure, since there's no instructions to make it clear. Thanks for any feedback.

[VolvoGirl · Accepted solution]

If you are each filing your own schedule C you only enter your own income and expenses on your C and his on his.  You have to split them out and divide them in half yourself before you enter them.

[VolvoGirl]

AZ is a community property state.  I don't know how those work.  That is more tricky and complicated.  You might need professional help with a local accountant.

Here's some IRS info.....

IRS info on Husband & Wife joint venture

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Election-for-Husband-and-Wife-Unincor...

Husband and wife joint business

http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Husband-and-Wife-Business

And see Schedule C instructions page C-2, Business owned and operated by Spouses

https://www.irs.gov/pub/irs-pdf/i1040sc.pdf

[VolvoGirl]

Oh, are you filing Separate returns or Joint?  Sounds like you are trying to file separate.  If it's one business you file 1 schedule C and don't split anything.  And if you are filing MFS only one spouse (probably his) fills out schedule C.  

If you are trying to split it you must be working on the AZ return.

[Anonymous]

do you both materially participate in the business?   if so, because it is an LLC, you were supposed to file a partnership return.   LLC's don't qualify for the joint venture exception..  there can be substantial penalties for failure to file for each year a return was due.  if this is the case seek professional help

now let's say only one of you materially participates then you have a sole proprietorship (SP) which is a disregarded entity - everything gets reported on that person's schedule C.  but then  there is                           rev. proc. 2002-69  which says in effect spouses living in a community property state who own a sole proprietorship as community property   (don't think this would be separate property under IRS rules - see below) can treat it as  a SP of the spouse carrying on the business or as a partnership but in that case must file the appropriate partnership return.  

the above applies if you are filing a joint return

now let's say your filing as married filing separately.  the IRS  publication 555 offers guidance on splitting your income

Wages, earnings, and profits. A spouse's (or your registered domestic partner's) wages, earnings, and net profits from a sole proprietorship are community income and must be evenly split.

if it's a separate property partnership then again a return would be required.  

Separate property is:
• Property that you or your spouse (or your registered domestic partner) owned separately before your
marriage (or registered domestic partnership).
• Money earned while domiciled in a noncommunity property state.
• Property either of you received as a gift or inherited separately during your marriage (or registered domestic partnership).
• Property bought with separate funds, or exchanged for separate property, during your marriage (or registered domestic partnership).
• Property that you and your spouse (or your registered domestic partner) agreed to convert from community to separate property through an agreement valid under state law.
• The part of property bought with separate funds, if part was bought with community funds and part with
separate funds.

whereas community property under IRS rules

Community property is property:
• That you, your spouse (or your registered domestic partner), or both acquire during your marriage (or
registered domestic partnership) while you and your spouse (or your registered domestic partner) are
domiciled in a community property state. (Includes the part of property bought with community property funds if part was bought with community funds and part with separate funds.)
• That you and your spouse (or your registered domestic partner) agreed to convert from separate to community property.
• That can't be identified as separate property.