Family business

[MccTax 2023]

My family operates a sole proprietorship. We have a massage center (the owner's name is mine) and rental property owned by us, we both materially participate in the business. When we registered our massage center, we put my name as the owner. Each year we filed a Schedule C and Schedule E. It was not intentional that I claimed all the income, we didn’t know that we should have filed as a qualified joint venture. I paid Social Security and Medicare taxes, but my wife has no credit for SS and Medicare. For the 2023 return, can we file Schedule C and E under my wife’s name? Or do we need to file as a QJV doing two Schedule Cs and Schedule Es splitting income/expenses 90/10?

[KrisD15]

The income should be proportionate to who does the work. 

You should continue with two Schedule C especially since you "registered" the business in your name. 

You can make your spouse responsible for more than 50% of the business in order to catch-up on the Social Security Accounts. 

You can amend three prior year returns and change the income allocations. 

FYI, Social Security does adjust for spouse's benefits if applicable. 

[MccTax 2023]

Thank you for your reply. We have a Schedule C and Schedule E. Can we proportionate Schedule E too? How we can have two Schedule Cs and Schedule Es? There is only 1 for each form.     

[ThomasM125 · Accepted solution]

The rental income reported on schedule E is unearned income, so it is not subject to social security and Medicare tax like your non-rental business. So, there is no obvious reason to split that income between the two of you. If you wanted to do that for some reason, you would need to enter two separate rental properties in TurboTax and split all items of income and expenses associated with the rentals between the two properties.

When you enter your sole proprietorship income, you add a new business for your spouses share of the business and enter her share of income and expenses on her business and the rest on yours. You'll see an option to add a new business when you are done entering things for the current business on the screen that says Here's the business info we have so far:

You'll see a similar option to enter a new rental property when you are done entering rental income and expenses for a rental property in TurboTax.

[MccTax 2023]

Thank you for your clarification. To catch up on the Social Security credit for my wife, we are filing as a QJV. I do believe that a qualified joint venture can apply to rental income (Schedule Es) and a self-employed business (Schedule Cs). But do we just file two Schedule Cs, and one Schedule E because the rental income is not subject to Social Security and Medicare tax.  This was super helpful thanks again.

[DianeW777]

Yes, you must file two Schedule Cs to give profit to each of you.  There is no requirement to file two Schedule Es for the rental property.  There would be no benefit to file two separate rental activities when there is only one actual rental property.

@MccTax 2023