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tplusfive
New Member

Where are the IRS rules regarding a spouse volunteering time in a sole proprietorship?

I am looking for the specific IRS guidelines that define when a spouse is no longer considered a volunteer but an employee.

1 Best answer

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Hal_Al
Level 15

Where are the IRS rules regarding a spouse volunteering time in a sole proprietorship?

There are no guidelines. If your spouse participates in the business, you can allocate the income and expenses any way you want*; including considering him/her a "volunteer" ( 0% participant ). If you do split the business, each spouse will submit a separate schedule C, with your joint return (or separate, if you choose to file separately).

* Unless there is a deliberate attempt at tax avoidance.

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5 Replies
Hal_Al
Level 15

Where are the IRS rules regarding a spouse volunteering time in a sole proprietorship?

There are no guidelines. If your spouse participates in the business, you can allocate the income and expenses any way you want*; including considering him/her a "volunteer" ( 0% participant ). If you do split the business, each spouse will submit a separate schedule C, with your joint return (or separate, if you choose to file separately).

* Unless there is a deliberate attempt at tax avoidance.

tplusfive
New Member

Where are the IRS rules regarding a spouse volunteering time in a sole proprietorship?

Thank you both for your replies. I saw this article - <a rel="nofollow" target="_blank" href="http://smallbusiness.findlaw.com/incorporation-and-legal-structures/your-sole-proprietorship-and-you...> - that indicated there could be employment taxes owed for the work your spouse does if you are not careful about the nature of the work.

"As a business owner, you will typically owe employment taxes and have to withhold a certain portion of an employee's paycheck for tax purposes. If you plan on having your spouse occasionally volunteer for your business, you need to be extremely careful about what you allow them to do and how often they volunteer.
For example, if your spouse does any sort of advertising, contact with the public or signing of documents he or she may be holding him or herself out to the public as a co-owner of the business in the eyes of the IRS. If that happens, the IRS will hit you with back taxes and penalties..."

Another article talked about "frequent and regular" involvement being a trigger.

My wife is starting a photography business and is starting out as a sole proprietorship (don't want to delve into all the pros and cons of that in this thread). I am helping on the business side but want to make sure I don't cause any tax problems for us later. So I am trying to find the actually IRS guidelines that address this.
Hal_Al
Level 15

Where are the IRS rules regarding a spouse volunteering time in a sole proprietorship?

You're no gonna find anything concrete. For a general discussion, see <a rel="nofollow" target="_blank" href="https://junewalkeronline.com/business-entity/the-many-advantages-of-hiring-your-spouse/">https://jun...>. The reference is old, but the conclusion is still valid. You’re OK, unless you’re trying to manipulate social security tax.  The 2017 wage base for Social security tax is $127,200. If switching the income to a spouse results in less SS tax, be sure to document your % allocation based on some rational basis, e.g. time spent by each spouse.
tplusfive
New Member

Where are the IRS rules regarding a spouse volunteering time in a sole proprietorship?

The discussion you referenced on junewalkeronline.com was helpful. Reading some more on her site. Thank you for the help 🙂
Critter
Level 15

Where are the IRS rules regarding a spouse volunteering time in a sole proprietorship?

They are an employee when you treat them as such by issuing them  a paycheck, a W-2 and file the proper payroll tax forms as required. 

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