What Happens When Both You And Your Spouse Decide To Work Together In The Same Business?

When both you and your spouse decide to work together, you form something known as a Qualified Joint Venture ( QJV). You can file as a sole proprietorship and yet be called a QJV. 

In which case, the IRS wants you to file Two Schedule C forms with your joint or separate income tax returns each year you are in business together. 

Each spouse reports his or her share of the profits (or loss) usually around 50%, on his or her Schedule C. 

Real Life Scenario– A couple were in business together for 45 years( probably as a mom and pop store), a sole prop, and filed their taxes jointly. As they were nearing their age of retirement, they went to claim their Social Security benefits. They were told that though the husband could claim the benefits, the wife could not claim simply because she never filed her taxes( self employment taxes in this case) independently on a separate Schedule C form all these years. The IRS had received just one Sch C form on their joint tax return all these years. What a bummer! You definitely do not want to be in such a situation! 

Solution: Either file two separate schedule C forms on your taxes, even if you are filing jointly. Or incorporate as a partnership or an S-Corp or even a Corporation. 

Bottom line: There are many spouses who even volunteer within their own business just to save on self employment or payroll taxes. By now we know that an unpaid spouse won’t get SS benefits. This is usually not a problem if the spouse has already qualified for coverage from a former job by working at least 10 years( or 40 quarters) or is qualified for survivor benefits when his or her spouse dies. 

How To Put Older Parents On The Payroll? 

A builder can hire his retired father for plumbing work. It can be shown as a business deduction and the father’s pay is most likely going to be taxed in a lower bracket. 

You can hire your parents and yet claim they as dependents on your taxes as long as you pay them below a certain income threshold, which is $4,300 for 2022. 

However, your mother or your father working might affect their social security benefits. 

Check with a tax professional before you decide to hire them. 

Useful Tips: 

• In a QJV, there cannot be other business owners such as children or outside people and both spouses must actually work in the business.
• There are no Social Security or Medicare expenses for working spouses who don’t get a paycheck. 
• Each sole proprietor spouse must file a separate Self Employment tax form ( Schedule SE) and pay Social Security and Medicare on his or her share of the income.