How do I change a sole proprietor business to a qualified joint venture?

[yesca4444]

I want to claim the child care credit for the time my wife and I were working together for our business. It keeps saying its a sole proprietor 1099-MISC income, and when i click on the child care credit it asks if my wife was a full time student or disabled. How do I change her working status?

[DanielV01]

You are correct.  To change to a joint venture, you will split all of the income and expenses by the same percentages, and you can decide what that is (50-50, 60-40, etc.), which will then be reported on separate Schedules C for you and your wife.  You will also need to send a statement to the IRS that says you wish for your business to be treated as a joint venture.  But your question does give a good reason for doing so:  to claim the child care credit which requires that you both are either working or in school qualifying for work.  Here is some additional information I provided on this subject in an answer I've given previously:  https://ttlc.intuit.com/replies/5717482

[bnse]

I actually have a follow-up question to this post.  My husband started a sole proprietorship (farming); however, over the years, my role has gradually increased.  Therefore, I am wondering if we should be filing as a QJV instead.  I understand that two Schedule F's are necessary, one for him and one for me.  Logistically, how do we make the split?  If we decide on a 50/50 split, can you just take the total for each income/expense category and divide it by two, or must each source of income/expenses be split according to the listed account holder?  Because the business began in his name, all accounts and tax forms are listed under his name and SSN.  Does this have any bearing at all?  Do we need to wait to file as a QJV until after getting half of the accounts listed in my name/SSN?  Thank you in advance for any advice you can provide.

[DanielV01]

@bnse It depends.  To claim a QJV does not depend on how your husband has the accounts set up with the bank, but rather, how he has the business set up with the state  In reality the question boils down to this:  Is the business registered as an LLC?

Yes, the business is an LLC:

In this case, you can only claim a Qualifying Joint Venture if you live in one of the 9 Community Property States:  (Louisiana, Texas, New Mexico, Arizona, Nevada, California, Washington, Idaho, and Wisconsin).  If you live in one of these states, you may make the election to claim as a Qualifying Joint Venture, but all income and expenses must be split 50-50.  You cannot use any other method.  If you live in any other state, the IRS does not allow you (technically) to claim a Qualifying Joint Venture if the business is an LLC.

No, the business is not an LLC

In this case, you may claim a Qualifying Joint Venture by making a proper election.  If you live in one of the Community Property states, you must still divide everything 50-50.  However, if you live in any other state, you may use any percentage that makes sense.  If this is done, all income and expenses will be divided by that percentage.

This IRS website discusses this further:  Election for Married Couples Unincorporated Businesses

[Marie925]

Daniel,

I have this exact issue, an old CPA sent our farm up as a sole proprietorship in my Husband's name, but I now want to make it a Qualified Joint Venture and split it onto 2 Schedule F's. You previously stated, "you will also need to send a statement to the IRS that says you wish for your business to be treated as a joint venture.", is there a specific form that is to be used for this "statement" and where do I send it? Any help or clarification on this would be great. I am already working to split all the income and expenses for my 2020 return between 2 Schedule F's. I just need to know if I should notify the IRS of this change before submitting my return.

Thank you!

[DanielV01]

@Marie925  The statement does not require to be on a preformatted document.  It would be good to put the primary declarer's name and social at the top of the page (which can be a blank Word Document, for example), and then a Header Line:  "Election to Treat Farm Income as a Qualified Joint Venture".  Afterwards, you can simply state that you and your husband choose to make the election to treat your business as a Qualified Joint Venture, and if you are not in a Community Property State, the percentages that each will receive.

The statement must be attached to the return, so your return will need to be mailed in this year.  Afterwards, it is not necessary to send in a statement unless you choose to revoke the election for one reason or another.

[bnse]

Thank you for your prior response. The farm has been set up as a sole proprietorship, so no LLC.  I am not so much concerned about the bank accounts and expense accounts.  However, all 1099s (government, crop insurance, cooperative payments) we receive come in his name only.  Is this problematic (as far as the IRS is concerned) when dividing up the income?  In other words, will it look erroneous to attribute half of the income reported on 1099s in his name on my Schedule F?  Or should we have all of these accounts placed in both of our names before reporting as QVJ?  Thank you in advance for any further advice! 

[DanielV01]

@bnse  As long as you have made a proper election, it should not be an issue.  You will still need to enter in all of the 1099s as usual.  If TurboTax doesn't allow you to adjust the amount directly on the Income Field (reporting 50% of all income to your husband and the other 50% to yourself), then there is an Adjustment Field in which you can enter 50% of all gross income.  Then you will enter that 50% on your Schedule F.  Keep records documenting how you divided this up just in case the IRS asks for it.

Separate bank accounts should not be necessary as long as the two combined Schedule F's divide everything correctly.  What I recommend is create the one complete one first, and write down all of the income and expenses, so you can divide them in two and then create the separate Schedules F.  Again, if you keep records of what you do, there should not be significant issues with the IRS (although they may always ask for proof of what you are claiming).