How do I join my wife's existing sole Proprietorship to form qualified Joint Venture?

[Joshraj75]

My spouse operates a Sole Proprietorship providing Technology/Software services and previously served as a Business Analyst on a 1099 basis. Although she has not actively worked for the past few years, the Sole Proprietorship remains open and holds a Fictitious Business Name (DBA). I am considering utilizing her Sole Proprietorship (DBA) for my 1099 work as I embark on an independent contractor opportunity. Are we eligible to be classified as a Qualified Joint Venture? Is there a need for my wife to make any adjustments to her Sole Proprietorship to include me as a Joint owner, or are there any specific filings required? What steps should we take next to establish a Qualified Joint Venture, enabling me to proceed with pursuing the independent contractor opportunity and filing annual taxes?

[PatriciaV]

Yes, you may elect to be treated as a Qualified Joint Venture (QVJ) by filing a joint tax return that includes separate Schedules C for each spouse. The spouses must share the items of income, gain, loss, deduction, and credit in accordance with each spouse's interest in the business. 

Basically, you input two separate businesses in TurboTax, one for each spouse. Be sure you mark which spouse owns each Schedule C business. This allows TurboTax to calculate self-employment taxes properly.

Note that only businesses owned and operated by the spouses as co-owners, that are not in the name of a state law entity (LLC) and without an EIN, may qualify as a QJV.

For more information, see IRS Election for Husband and Wife Unincorporated Businesses

[Joshraj75]

Thank you for your response. It clarified the process of filing through TurboTax. However, I still have a question about whether I need to be formally added to my wife's Sole Proprietorship. I intend to use her DBA for my work as an independent contractor (C2C) on a 1099 basis. If we file taxes jointly with individual Schedule C forms, does that automatically qualify us as a Qualified Joint Venture (QJV)? Or are there specific changes required for my wife's existing sole proprietorship at the state level?

[DianeW777]

Yes, that would qualify you if you jointly own the businesses (hers and yours) and file two Schedule Cs.  

An unincorporated business jointly owned by a married couple is generally classified as a partnership for Federal tax purposes. For tax years beginning after December 31, 2006, the Small Business and Work Opportunity Tax Act of 2007 (Public Law 110-28) provides that a "qualified joint venture," whose only members are a married couple filing a joint return, can elect not to be treated as a partnership for Federal tax purposes.

How to make the election: (As noted by @PatriciaV)

Spouses make the election on a jointly filed Form 1040 or 1040-SR by dividing all items of income, gain, loss, deduction, and credit between them in accordance with each spouse’s respective interest in the joint venture, and each spouse filing with the Form 1040 or 1040-SR a separate Schedule C (Form 1040 or 1040-SR), Profit or Loss From Business (Sole Proprietorship). For example, to make the election for 2022, jointly file your 2022 Form 1040 or 1040-SR, with the required schedules (see below). The partnership terminates at the end of the taxable year immediately preceding the year the election takes effect. 

@Joshraj75 

[Joshraj75]

Thank you for your response. Essentially, based on the feedback it seems that I am unable to engage in a C2C arrangement for my contract work under my wife's Sole Proprietorship. She has obtained an EIN for her business for banking purposes. From my understanding, given the current situation where my wife operates as a Sole Proprietor and I don't have my own Sole Proprietorship, I can function as an independent contractor and receive income on a 1099. There's no need for any alterations to be made to my wife's Sole Proprietorship documentation, and I don't have to establish my own Sole Proprietorship. The only step required for Qualified Joint Venture is to distribute the revenues and expenses on two separate Schedule Cs for the compensation I received via my 1099. Is my comprehension accurate in this regard?

[KrisD15]

Yes, however you will need to use the EIN of the Sole-proprietorship for your W-9 and 1099's.

Corporations and Partnerships file and pay taxes on their income. 

Then, each shareholder or Partner claims their distribution of the profit on their personal tax return. 

This means the income is taxed twice.

A Sole-proprietorship is a "Flow-Through Entity" and the owner files Schedule C as part of their personal tax return. The business income flows to the owner's 1040 and is taxed only once.  

A Sole-proprietorship can have only one owner, however married couples have the option of sharing the sole-proprietorship. This is referred to as a joint venture. 

The advantage of having a joint venture, where each spouse files a separate Schedule C, is that the Social Security tax is split based on the income split and funds each person's separate Social Security Account.  

If you are both assisting with the work of the Sole-proprietorship, split the income accordingly and file two Schedule C's. 

If you do work completely different than your wife, and you only intend to claim what you earn via 1099, you could just as easily have your own Sole-proprietorship and file your own schedule C for that business. It could also be difficult to claim expenses that are ordinary and necessary on one schedule C if it included two very different types of businesses. 

A sole-proprietorship has no liability protection, so keep that in mind if any of the work poses danger or risk.