I Started a Business With My Spouse. Do We Have to File a Tax Return?

There’s a million things to consider when first starting a business, and unfortunately many of those items revolve around tax and tax reporting. In addition to federal filing and paying requirements, you may also have state and local reporting requirements.

If you’ve just recently started a business with your spouse, you know you and your new business partner have a lot to do. And filing a tax return is one of those things.

Your spouse and you will likely be required to file a Form 1065 Partnership Information Return. This information return is purely to report the income and expenses of the business. After these items are reported on the Partnership return, the net income and other items (such as Health Insurance paid on behalf of the partners) are reported on Schedules K-1. 

Think of Schedules K-1 like a W-2 for a wage earner. The net income is essentially the wages that would have been paid to an employee. However, tax likely was not withheld from this income. Also, the income reported to each partner is distributed based on percentage of ownership in the business. 

If no other percentage is specified, it is generally assumed that each owner has equal percentage ownership (for spouses, 50% each). 

It should be noted that Form 1065 and Schedules K-1 are considerably more difficult to fill out than a Schedule C attachment on a normal tax return for a sole proprietor.

Because of this, the IRS allows a special rule for married couples starting a new business. If you are what is considered a Qualified Joint Venture, you and your spouse can elect to file two separate Schedules C (each reporting equal amounts of revenues and expenses) and attach them to your tax return.

In order to make this election, you must not be recognized as a state organized entity (like an LLC). 

The rules are set up this way specifically to give both spouses credit for Social Security and Medicare earnings under their Social Security Numbers.

 


This article is not meant to constitute tax or legal advice. For help regarding your situation, please consult a local professional.

Do I Report Income From My Garage Sale?

We get a lot of questions regarding what transactions are taxable and what which are not, especially in regards to sales of various items and at various prices. 

Most of us know that when we sell capital assets like stocks and bonds, it creates a taxable event. There are special rules for these scenarios and many other common events; one of those common scenarios is having a garage sale.

When you sell any of your old household items, shouldn’t it make sense that the money you receive from the sale would also create a taxable event?

If you had followed the rules perfectly, you would have tracked your basis (original cost of each item) in all of these items that you’ve sold, so that you would know if you had a gain or loss on every item.

So do you get to deduct your losses? After all, surely you spent way more on these things than you ever would have sold them for!

Unfortunately, personal items do not qualify for a deduction against your other income when you sell them at a loss.

But that certainly will not stop the government from taking its cut when you sell personal items at a profit. 

If you by some miracle are able to sell any of your old items at a profit, this does create a taxable event.

These items are considered personal-use property, so they are considered capital assets and any gains on them are to be reported on Schedule D (Capital Gains and Losses) as a capital gain. 

If this is an event that does apply to you, make sure to consult the IRS publications for help. The taxable amount will be the sales price minus the original purchase price and minus any improvements made to the property.

 


This article is meant to be generalized guidance and does not constitute legal or tax advice. For help regarding your specific situation, please consult a local professional.