W2 plus Side Business for Married Couple

[watergirl2]

Hello Tax experts

I am looking to verify that I am filling my taxes correctly. I have two questions

I am married filling jointly. We have done this for 28 years.

Some years ago my husband retired and we started an online business.
I kept my job, 

So I have a w2 and we both are partners in the business.
I added the w2 and I am adding two Self-employment income and expenses forms. One for each splitting everything 50% 50%

Is this correct?

Next Dec we plan to open an LLC partnership and continue to split the business 50% 50%. 

Will we be able to do the same under the same Turbotax Premium Account if we have an LLC?
Or will we have to file business taxes separately and get K1's

[PatriciaV]

Yes, you are reporting your employment and shared business properly this year. Note that filing two Schedules C tells the IRS you are electing to be treated as a Qualified Joint Venture. For more information, see IRS Election for Husband and Wife Unincorporated Businesses.

If you create an LLC next year, you will need to file a business return for that entity, available using TurboTax Business. The business return will include a Schedule K-1 for each partner to be reported on your individual tax return.

[watergirl2]

Hi Patricia

An expert inside turbo tax asked to me delete my form and leave jims' explaining that since I have a w2 i didn't need another form. So I deleted mine and added the full totals under Jim's.

If I don't add a form for my part and add the total under Jim's will that be wrong? 
Is the join venture election optional? We don't take salaries and there is no social security or benefits. I am curious why file as joint venture? 

The only reason I see would be to be clear and transparent since we both worked on the business and shared expenses. Otherwise it appears as is Jim was the only one working. But the taxes don't change. So would the IRS care? The difference for me now is to go back and re do the second form and change all the numbers so they are 50% / 50%. If there is no difference I would be done and ready to file as is.

[AmyC · Accepted solution]

Will it be wrong? Technically, yes, since you are both owners of the business. Reporting it all on one form leaves you out of the loop. 

• This means income earned from the business would be credited solely to your spouse, which adds to his Social Security Earnings table. You can increase your benefits as they take the top 35 years of income. If you plan on claiming half of his, it won't effect your table and could effect his.
• You would also lose the $400 exemption from Social Security and Medicare tax that you each get. Which is worth $61- since you don't see a difference, you may not have income for the business. The SE tax should be showing a difference if you did have income.
• You would be reporting all income and paying all federal tax either way

It is up to you how you file your taxes but I tend to err on the side of caution and complete accuracy. 

[watergirl2]

Yes. I want to do it right by the book. I was being lazy because  i had it set up with two forms and the totals split in half and the expert in turbo taxed asked me to remove mine and add all the full totals in my husdand's. So now I have to do it again. Not a big deal. 

Last thing to mentioned is that we don't get  Social Securities. We are not set up as employees. Just founders and still growing a business.  So there are no salaries. Small income at this point. 

This is why I was asking if it was optional or required to opt for the two forms approach which signals we are choosing the join venture. For the IRS the taxes own and refunds will no change.  I think the benefit or reason to use two independent contractor forms is that it represents that we are a business working together and not just freelancers.

[SusanY1 · Accepted solution]

While you're not paying a salary and payroll taxes, any profit earned on the business will have self-employment tax which is what you would like to have credited to each of you.  This tax will be added to your individual social security earnings records, even though you've not filed payroll reports withholding and paying social security taxes throughout the year. 

The end tax is the same, but how it is credited by the social security administration will differ based on whether you have one or two Schedule C forms.  You mention it's a small income at this point, but hopefully in future years that changes and then the difference will matter a bit more. Re-doing it again into separate forms for this year is a bit of a pain, but it'll save headache in future years.