Business & farm

I have to suggest you see a professional.

 

At this point, you can amend your 2019-2022 returns.  You must generally file an amended return within 3 years of the filing deadline, but since the deadline for 2019 returns was extended to July 15, 2020 due to the pandemic, you still have about a month to amend your 2019 return.  You have a year or more to amend your 2020, 2021 and 2022 returns. 

 

However, this rule usually applies to amending for a refund.  If you need to amend to pay more tax, the IRS will happily accept it any time.  It may be possible for you to file amended returns going back 10 years to change your sole prop to a QJV, because it will not result in a refund, it will only change to whom the taxes were assigned.  This is why I want you to consult with an enrolled agent -- this is an accountant specially admitted to practice before the IRS.  

 

 

There are 5 ways you can handle a spouse who participates in your business. 

1. File as a qualified joint venture.  Each spouse files a schedule C to report their share of business activity, income and deductions.

2. File as a sole prop and hire your spouse as a W-2 employee.  You deduct the wages and employment taxes as a business expense and they report the income.

3. File as a sole prop and employer your spouse as a subcontractor.  You deduct the subcontractor payments and the spouse files a schedule C as an independent contractor.

4. File a 1120-S form 1065 partnership return (not recommended if you are eligible to file as a QJV).

5. File as a subchapter-S corporation (not recommended without professional advice).

 

You can only pay your spouse wages, or hire them as a subcontractor, or file as a QJV, if they materially participate in the business.

 

Hiring your spouse as a W-2 employee or a subcontractor would not be recommended in your case because your spouse would owe back taxes and penalties, that would be more than you would save by deducting the wages as a business expense.