Question

I own my own business and I’m a married business owner. I have a question related to filing taxes when married with a business. How should I file — Should I file jointly with my husband for our personal income and file a separate business return?

Answer

It depends. The type of return you file is based on:

  • How your business is organized at the state level
  • The elections you make with the IRS

The type of business return you file and whether you file a joint return with your spouse are separate choices.

Ex: Your business is a licensed limited-liability company (LLC) under state law. You’re the only owner. So, you’re a sole proprietorship–by default–and filing requirements dictate sole proprietorship businesses file with a Schedule C.

However, you can choose to be taxed as either of these instead:

  • S corporation (Form 1120S)
  • C corporation (Form 1120)

If you’re an LLC with more than one member, you’re a partnership by default. You’ll use Form 1065. Or, you can choose to be taxed as either of these instead:

  • S corporation (Form 1120S)
  • C corporation (Form 1120)

Report your income or loss from the business on your personal return:

  • Sole proprietorships — use Schedule C
  • Partnerships and S corporations — use Schedule E
  • C corporations — These are separate legal entities for tax purposes. You don’t report a gain or loss by a C corporation. However, you might have to report dividends or other distributions from the corporation to you.

The decision of whether to file a joint or separate return with your spouse should be based on your overall tax picture. When you file a joint return with your spouse, you’re both individually liable for 100% of the tax due. Also, if your spouse owes past-due debts, your refund might be kept and used to pay these obligations.

On the other hand, if you file a separate return from your spouse, you won’t be eligible for certain credits. This includes the child tax credit and the Earned Income Credit (EIC). So, consider all relevant factors when you choose to file jointly with or separately from your spouse. Don’t base your choice only on your business.

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