Self employed married couple

[RLymanC]

Self employed married couple (first year in business) in a community property state lived together in 2006, separated this years and filing for divorce. They won’t file a joint return. The business is in the wifes name, the husband runs and does all the work (plumbing business)

I’m thinking a MFS return for each with two Schedule C’s and split income and expenses.

There is $4500 in Sec.179 expenses,,,not sure how to handle that if MFS return is the way to go. The Sec. 179 property will go to husband, however they both own 1/2 in community prop state.

Looking for support on my plan……….all comments appreciated.

Thanks

[WhiteOleander]

Well, now see, here's the rub. The way I understand it, if they file MFS, each has to take 1/2 of the other's income on their return. Especially since they lived together for the year. Community Property Split.

So, it could turn into a nightmare trying to split all of that out. Now, I know alot of people ignore that rule. They figure if all income is reported, IRS won't say anything. But, since they are trying to run two Sch C's instead of a 1065, the IRS may challenge that.

Not sure if it is to their benefit to go MFS.

[Gretel]

I don't know much about community property states.

But recently the IRS allowed ALL married sole proprietorships to split there profit or loss in according to how much each has worked performed in the business to avoid having them file a partnership return. I can't see why this would not also apply to community property states.

[WhiteOleander]

Yes, they can use the two Sch C's instead of the 1065.

The point I was making is that they have to do a community property split on the income.

It might not cause a problem, but it could. How will they decide who earned what income for the business. And then each party must take half of the other's income to their own return.

[RLymanC]

split

There is no calculation as to who earned what.....in a comminity property state it's 50/50 if they co-mingle funds.

Just like a partnership 1065 50/50 ownership....each get half of net profit or loss

[Davc]

I don't know much about community property states.

But recently the IRS allowed ALL married sole proprietorships to split there profit or loss in according to how much each has worked performed in the business to avoid having them file a partnership return. I can't see why this would not also apply to community property states.

That takes affect for tax tears starting after 12/31/2006.