How do you properly split business income and expenses in a husband-wife 50/50 sole proprietorship.

[charliewalkrich]

TurboTax says that I have to do two separate schedule C forms. One for me. one for her. However, all of our business income and expenses are on one credit card and our tax ledger does not show who paid for what. Do we just divide everything 50/50 or can I list all expenses under one person? This would be a lot easier than splitting everything single bill/receipt 50/50.

[DanielV01]

It depends.  If you are looking to file as a qualified joint venture (I have an additional answer with more information on this), you can choose the percentage you wish.  You are correct, however, in that you do need to prepare two Schedules C and divide everything by the same percentage if you wish to claim the joint venture as a business for each of you.  If you have never done a joint venture, you can choose to file just one Schedule C, but only one will get credit for the work (and pay in Social Security and Medicare taxes).  Your other option is to do a partnership return (which for most is even more complicated).  

Here is some additional information on this subject:  https://ttlc.intuit.com/replies/5717482

[Shelly-pfeifle]

Will you have to pay more Self Employment tax if you split 50%/50% (let say 200K net taxable income) or are you better off keeping all the income under one SSN?  

[SweetieJean]

Which state?

[Shelly-pfeifle]

Washington

[Shelly-pfeifle]

Washington State

[TaxGuyBill]

@Shelly.pfeifle   Yes, it would result in more Self Employment tax.  However, if it is a Qualified Joint Venture where both spouses run the business, it would be Tax Fraud to lump it all together and only apply it to one spouse.

[SweetieJean]

Washington is a Community Property State. Do you have  an LLC?

[RugbyDad]

I have an add on question.  My wife and I have a husband-wife 50/50 business as described in the original post and we have been submitting two schedule C's with revenue and expenses split evenly for the past 5 years.  We also live in King County within the State of Washington.  As such we had to buy our healthcare insurance through the Healthcare Exchange.  We paid full price four our premiums and received a 1095A form.  The issue we are having is that in Turbo Tax Home & Business the software is only allowing us to apply the premiums we paid against one schedule C (ie. half of the business).  So we are in effect only getting half the credit and not realizing the full tax benefit.  This seems to be an issue with Turbo Tax.  Does anyone have a suggestion as to how to get around this issue?

[MaryK4]

The Self-Employed Health Insurance (SEHI) deduction is an adjustment to income so it should be applied to the total net business income on the return.  If you entered the 1095-A information, it is possible that you received the Premium Tax Credit for part of the amount that is not showing as the SEHI.  I suggest you compare Schedule 1 Line 16 and Schedule 3 Line 9 to see if they add up to your total premiums paid.  If this is not the case, please follow up here and we can look for something else.

@RugbyDad

[RugbyDad]

@MaryK4 Thank you for your response.  I compared Schedule 1 and Schedule 3 and the numbers don't come close to the total premiums paid.  It's important to note that we do not qualify for the PTC.  We only use the WA Health Plan Finder because we live in King County and apparently its a requirement if you don't have group insurance.  It's a real pain and every year they screw up our insurance.

Per my original note, we have a business that is husband-wife owned 50-50 so we submit two schedule C's per TurboTax instruction, but when we apply the 1095A it only allows us to use one of the schedule C's thus effectively reducing our potential credit by 50%.

[MaryK4]

@RugbyDad  Let me do a little more research on this and I will tag you when I find something out.

[LeonardS]

Because you are a married couple and both materially participate in the business you are eligible to treat your business as a Qualified Joint Venture (QJV).  

A qualified joint venture is a joint venture that conducts a trade or business where:  

• The only members of the joint venture are a married couple 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.  

You will each need to create two separate sole proprietorships on your return. You will  then split your business income and expenses between the two businesses according to ownership percentages or by participation percentages.  

The IRS has not issued any guidance on how to split the 1099-Misc when there is qualified joint venture when a 1099-Misc received is only in one of the spouse's name.  

To avoid the IRS being unable to match the 1099-Misc to their records: 

1. The entire amount should be reported as income under the Social Security Number on the 1099-Misc and entered as a 1099-Misc 

2. That spouse then would then enter, as an expense, in the Miscellaneous Expense section the amount of the 1099-MIsc Income based on the other spouse's percentage. The description on the entry would be "QJV income to spouse" 

3. The the other spouse would enter this amount as Other self-employment income. 

This link to  Election for Married Couples Unincorporated Businesses   is an the IRS web site and has information that you may find useful.  

[RugbyDad]

@LeonardS Thank you for your note.  This is exactly how we have been filing our taxes each years since we formed that business.  So I'm glad to have further confirmation that we've been doing it correctly.  The complexity has occurred with the question that @MaryK4 has been helping me figure out which is the issue of assigning our healthcare premium expenses against both schedule C's.  Because we live in King County and don't belong to any group insurance plans we have to use the WA Healthplan Finder.  We do NOT take any credits (ie we pay our full premiums).  But we have a 1095A form.  And Turbotax will only apply the premiums agains one of the schedule C's in effect allowing us to only get credit for half of the premiums we paid.  @MaryK4 is still doing some research to figure this issue out.  I believe there needs to be a coding update to TurboTax to address this unique issue.  But I could be wrong....

[RugbyDad]

@MaryK4 Hi Mary I was curious if you were able to look into this issue in any more detail?  Thanks.