Dealing with income for H/W Sch C income

[FEDUKE404]

A long-term client (H/W) have filed individual Schedule C's, to include separate Forms 8829 (they state they each have "their" office spaces), for several years.

In the past, it has been relatively easy to determine "his" and "her" income, along with some of "their" income, for the two Schedule C's.

Now their income is being reported on a single Form 1099-MISC (Box 7, "non-employee compensation"). To make matters even worse, the name/SSN shown is that of the husband even though in the past the bulk of the sales have been generated by the wife.

The clients have restated "we work as a team" and apparently that is a fairly common practice for realtors. (What happens if they are not married to each other???)

Suggestions as to the proper way to handle this situation would be greatly appreciated. The only input from them, so far, is "split it if possible since we work as a team."

FE

[Burke]

Since they work as a team, each is attributed 50% of any sales by the company. The company must be drawing the check only to the husband, however. The company should really split the check in half to each. This is assuming she is actually employed by the real estate firm as an independent contractor and has the proper licenses, etc. If she is not, the company's only obligation is to him, and he might have some explaining to do to the IRS as to why half is being attributed to her. You could have the husband report the full amt on his C so that it will match the IRS records, and give her a 1099 from him to her for 1/2 the amt for this year. I would find out why the company is doing it this way. They may want to correct it.

[DaveinTexas]

Similar client

I have a similar situation with a client who works with his wife at a large RE firm. They also report the total amount of income on one 1099. I split the income and expenses right down the middle, however, we live in a community property state. The IRS, I assume, would have no problems with this arrangement because it actually generates more income subject to SE tax (the 1099 is greater than the FICA max).

I've tried to convince the client to hire her spouse as an employee to get the benefit of the HRA plan but that makes too much sense