1040 Communal State: Husband and Wife work together.

[Alex012]

Objective:

How can the wife pay me so we can file jointly?

Situation:

The wife and I work together. We live in Texas which is consider a community property state. We are working under a LLC which the wife and I created and we are the only members on it.

We use “Square” as our merchant processor. They only give out one 1099-K and it’s under the wife social. We never updated to the business EIN. (1) Should we updated her social on square to the business ein for the following years like that it is easier to split the income?

I never thought it was going to be this complicated but how can we file taxes together? We have always filed joint except this this year we started to work together.

I have read that we can use separate schedule C and divide up the percentages. This seems like it’s the only likely option from what I have read. Her schedule C would have her social and it also has the ein that refers back to the business ein which is under the wife name.

If I were to create my schedule c using my social. (2) Would I use the business ein on my schedule C?  

Just as an example the wife could put she paid me xxx.xx/percent cash under the contract labor expense on her schedule C, even though we were working together as husband and wife. I didn't think at the time a 1099nec would have been necessary since it was husband and wife. (3) Would I report the cash received under my schedule C part I Income: 1a (Enter other gross receipts or sales not reported on a 1099nec…). received and put the business ein which is under the wife name?

My assumption of this is if my wife pays cash contract labor expense (me) using her business ein and on my schedule C it sees receiving cash from business by putting business ein it would equal out? Like I mention an assumption. 

Any advice would greatly be greatly appreciated I am not sure on how to proceed or any other advice. Thank you for your time. 

This is what I have been reading.

https://www.irs.gov/businesses/small-businesses-self-employed/married-couples-in-business

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

[Vanessa A]

1) Yes.  Have square issue the 1099-K to the business

" I have read that we can use separate schedule C and divide up the percentages."  That is exactly how you do it

(2) Would I use the business ein on my schedule C? No.  Neither of you use the EIN on the Schedule C.  You will use your SSN only.  The EIN doesn't really go on your return at all when you are filing a Schedule C.  It would be used if you filed the 1065.  You only need ONE EIN and that is for the business. 

(3) Would I report the cash received under my schedule C part I Income: 1a (Enter other gross receipts or sales not reported on a 1099nec…). received and put the business ein which is under the wife name?  Yes, you would report your half of the cash on Schedule C part 1.  As you walk through the steps in TurboTax to enter the income, you will get to a spot where it asks about the income, here you will select Cash, 1099-K and then enter your share.  She can do the same thing.  Your wife would not list you as contract labor as you are not subcontracting with her you are her partner.  Also, since you are in a community property state, the income is split which means this SHOULD not cause an issue when you  both enter half on your returns. If the IRS would happen to question, just be sure to respond and let them know that it was split.  And then definitely get your EIN on all contracts from now on to make it simpler.  

Again, the EIN is NOT entered on your return at all. The EIN belongs to the business/partnership.  

Community income1,2,3 is income from:
Community property;
Salaries, wages, or pay for services of you, your spouse (or your RDP), or both during your marriage (or registered domestic partnership) while domiciled in a community property state; and
Real estate that is treated as community property under the laws of the state where the property is located.