SE Taxes

[RLymanC]

I believe somewhere in TTB Delux is mentions that rather than file a partnership return for a married couple in business, the IRS has not been complaining about one Schedule C, and spliting the the net income and each paying into SE.

Any comments on this approach?

[Jesse]

See thread from

"Schedule C vs. 1065" from 1/12/06 one of Bees Knees posts has a link to another thread on the topic.

[Bird Legs]

Partnership-Sched. C

In community property states this is sometimes done. One Sched. C & 2 Sched. SEs.

[Bees Knees]

TTB, page 5-7 under the heading Schedule C or Partnership, there is a sub heading for Husband and wife business.

Or if you want something more spicy, try this thread:

http://www.thetaxbook.com/forums/showthread.php?postid=97#poststop

[abby]

SE Tax

The instructions for a community property sched C do state that all the SE income should go on one SE for the one (primary) owner.

We had a discussion some time ago and it appears that if you want to split the SE Income, then filing a partnership return with 2 K1 is a clearer route than a joint sched C.

IRS may not be challenging this, but the instructions, while allowing a community property sched C, do not allow the splitting of the SE

[JON]

Discussion was good before

I am not in a community property state and I have two Schedule Cs recorded as joint, it automatically splits the SE 50/50 on Ultra Tax. The first one was a sister and husband of a good client who had gone through a BIG audit with substantial changes prior to my involvement. I left that one because of the large IRS file I reviewed. That was probably arount 1996. About 2001 or 2002 client did receive a letter from the IRS questioning why a partnership return was not filed in place of the Schedule C. I responded it has been done that way forever and audited without any suggestion for a change. The response was as I remember we will accept as previously filed (worded better). The second one is a husband and wife real estate team. They signed all contracts with the real estate company as joint-the 1099 comes out with both their names and even the retirement plan contributions are made and matched 50/50 to seperate accounts of each. Originally the husband did not appreciate my suggestion of 1065 and the 1099 was social security number anyway so a C with the in and out would have to been done. After his insistance I a joint Schdule C was filed with me telling him IRS correspondence will follow. That was 15 years ago, still a joint Schedule C and no correspondence. The first case there is probably no tax difference-in the second one I could get one of them over the FICA level with a different assignment of income.. The best plans do not always get done.

[RLymanC]

Sch.C or 1065

I tend to agree with Abby, forgot the Pub number, but it say's that one Schedule C is OK for a husband and wife, BUT, say's nothing about spliting the SE. SOOOOO.......
I had my client apply for a Partnership EIN number today. At least this approach will absolutely positively be correct, and no possibilty of penalty.

Another approach to this problem was to change Sch. C every other year to spouse.

The other way may be OK, but not "Aboslutely, Positively" OK. Yer right, I used to fly for FedEx.

I would like to thank all for their thought and imput. May the waters be calm, and keep the wind at your back, nuthin better than downwind sailing.

[Safire]

I won't say it's the right way, but the firm I used to work at did it that way all the time. One Sch C & 2 SE's. I worked there for 8+ years and never heard a word from IRS that it should be done differently.

Why burden a husband and wife with the extra cost of having a partnership tax return done so they can take 2 identical K1s to a jointly filed 1040. Once they file that 1040 return, they both become equally liable for any taxes incurred from either of those K1s.