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

[HopeS]

See below you can use the de Minmis Safe Harbor on Schedule C  and Sch E.

Review the link below:

Safe Harbor election

@Beachcomber 

[setcel]

Is it possible to file 2 schedule C if you are a sole proprietor filing married but separately?

We used to file married jointly for years under only 1 social security number.

We would like for tax return 2022 to file married but separately as we are separated.

Is it an option?

[Opus 17]

[removed, I misread the question]

[Mike9241]

the  IRS answer no you can't unless you live in a community property state. if not a opartnership return is required

Unless a business meets the requirements listed below to be a qualified joint venture, a sole proprietorship must be solely owned by one spouse, and the other spouse can work in the business as an employee. A business jointly owned and operated by a married couple is a partnership (and should file Form 1065, U.S. Return of Partnership Income) unless the spouses qualify and elect to have the business be treated as a qualified joint venture, or they operate their business in one of the nine community property states.

A married couple who jointly own and operate a trade or business may choose for each spouse to be treated as a sole proprietor by electing to file as a qualified joint venture. Requirements for a qualified joint venture:

• The only members in the joint venture are a married couple who file a joint tax return,

since this test is filed I'll omit the other tests

•  

Married couple businesses in community property states may sometimes qualify to be treated similarly to a sole proprietorship. For Special Rules for Spouses in Community States, see Revenue Procedure 2002-69PDF and the Instructions for Schedule C.

[Opus 17]

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@setcel wrote:

Is it possible to file 2 schedule C if you are a sole proprietor filing married but separately?

We used to file married jointly for years under only 1 social security number.

We would like for tax return 2022 to file married but separately as we are separated.

Is it an option?

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No.  When 2 married people operate a business together, that is normally a partnership, but they can elect to file as a "qualified joint venture" using 2 schedule Cs.  However, you must file a joint return to file as a qualified joint venture.  If you want to file separately, you have to file the business as a partnership.  

https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorpo...

Alternatively, you can report the business as owned by 1 person who files a schedule C, and the other person is either an employee or a subcontractor.   If subcontractor, the business owner would report all the income and expenses, and one item of expense would be the fee paid to the subcontractor.  The business would issue a 1099-NEC to the subcontractor.  The subcontractor would file a schedule C to report their income as a subcontractor.

To file as a partnership, you need to file form 1065 Partnership return. This will generate a K-1 statement for each partner that they include on their personal tax return.  A K-1 "passes through" the partner's share of income and expenses to their personal form 1040.   Form 1065 can only be prepared with Turbotax Business, this is a standalone business only program, not "Home & Business", and it is only available on PC, there is no Mac or online version.  The deadline for form 1065 is March 15, not April, and the late fee is $195 per month per partner.  You may be able to request a waiver if this is your first time with a penalty.

You may want professional assistance this year. 

[Carl]

One thing that has yet to be addressed in this thread. The original poster identified the business as a "sole proprietorship".  There is a difference between a sole proprietorship and a joint venture.

A sole proprietorship has only one owner if you registered only one owner when the entity was set up with whatever state the business is registered in.. There is nothing to split. A sole proprietorship reports all income on one single SCH C with the registered owner's SSN or EIN on that SCH C.

A joint venture is a different story, and it does matter if you are in a community property state, or not. With a joint venture/partnership, those in a community property state have the choice of splitting everything 50/50 and filing two separate SCH C's provided the owners are married to each other and are filing a joint return. Or they can file a 1065 Partnership return which issues each owner a K-1 that gets entered on the personal tax return of the recipient of the K-1's, weather they file MFJ or MFS.

[Anonymous_]

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@Carl wrote:

A joint venture is a different story, and it does matter if you are in a community property state, or not.

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It actually does not matter if the spouses are in a community property state or not for the purposes of electing qualified joint venture status.

It would only matter if the spouses had formed an LLC and were the only members of that LLC.