do you both materially participate in the business? if so, because it is an LLC, you were supposed to file a partnership return. LLC's don't qualify for the joint venture exception.. there can be substantial penalties for failure to file for each year a return was due. if this is the case seek professional help
now let's say only one of you materially participates then you have a sole proprietorship (SP) which is a disregarded entity - everything gets reported on that person's schedule C. but then there is rev. proc. 2002-69 which says in effect spouses living in a community property state who own a sole proprietorship as community property (don't think this would be separate property under IRS rules - see below) can treat it as a SP of the spouse carrying on the business or as a partnership but in that case must file the appropriate partnership return.
the above applies if you are filing a joint return
now let's say your filing as married filing separately. the IRS publication 555 offers guidance on splitting your income
Wages, earnings, and profits. A spouse's (or your registered domestic partner's) wages, earnings, and net profits from a sole proprietorship are community income and must be evenly split.
if it's a separate property partnership then again a return would be required.
Separate property is:
• Property that you or your spouse (or your registered domestic partner) owned separately before your
marriage (or registered domestic partnership).
• Money earned while domiciled in a noncommunity property state.
• Property either of you received as a gift or inherited separately during your marriage (or registered domestic partnership).
• Property bought with separate funds, or exchanged for separate property, during your marriage (or registered domestic partnership).
• Property that you and your spouse (or your registered domestic partner) agreed to convert from community to separate property through an agreement valid under state law.
• The part of property bought with separate funds, if part was bought with community funds and part with
separate funds.
whereas community property under IRS rules
Community property is property:
• That you, your spouse (or your registered domestic partner), or both acquire during your marriage (or
registered domestic partnership) while you and your spouse (or your registered domestic partner) are
domiciled in a community property state. (Includes the part of property bought with community property funds if part was bought with community funds and part with separate funds.)
• That you and your spouse (or your registered domestic partner) agreed to convert from separate to community property.
• That can't be identified as separate property.
