Filing Your Sole Proprietor Taxes Jointly with Spouse

You can file your taxes jointly with your spouse while operating a sole proprietorship. We consider the benefits and drawbacks of filing your taxes jointly and separately from your spouse.

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You might feel like you’re simultaneously married to your spouse and your business. Rest assured, you don’t choose one over the other for filing your taxes: You, your spouse, and your business can file taxes together.


Can I file taxes as a sole proprietor and jointly?

The question implies you’re a sole proprietor married to someone who does not have an ownership stake in your business. Of course, what’s yours is mine and so forth, but your business is registered only in your name.

The answer is yes, you may file your taxes jointly with your spouse while operating as a sole proprietor. Your business ownership doesn’t affect whether you can file your taxes jointly with, or separately from, your spouse.

A sole proprietorship is the default tax classification for a business with one owner, or single-member LLC. For tax purposes, you and your sole proprietorship are one taxpayer, inextricably linked. Sole proprietors attach Schedule C and Schedule SE to their personal tax return Form 1040.

What if your spouse has an ownership interest in your business? Unless you live in a community property state, you won’t be considered a sole proprietor when your spouse is a co-owner in your business. Instead, your business is treated as a partnership, which requires a separate annual tax filing.

Community property states are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Businesses registered in other states will require you form a qualified joint venture to avoid the administrative burden of filing as a partnership.


What are the advantages of filing taxes as a sole proprietor and jointly?

Filing taxes jointly with a sole proprietorship has plenty of upside:

1. Business losses offset spouse’s income

Say you started a sole proprietorship that showed a $25,000 net operating loss (NOL) in its first year. Meanwhile, your spouse earned $100,000 working as an employee at an unrelated company. Your household income was $75,000 ($100,000 spouse’s income - $25,000 net operating loss).

When you file your taxes jointly, a business loss reduces household income. Lower household income equals lower tax liability. In years when your business loss exceeds your spouse’s income, your household will owe no federal income tax and might be able to get an immediate tax refund on taxes paid in previous years.

If you file your taxes separately, you have no opportunity to reduce your spouse’s current year tax liability. You can still take advantage of the net operating loss deduction by carrying the deduction into future years where your business turns a profit. Check out our guide on the net operating loss deduction for more information.

2. You can take the full child tax credit

If your household is eligible for the child tax credit, you’ll want to file your taxes jointly with your spouse. By filing jointly, you can get a credit up to $2,000 for a qualifying child.

Tax credits are a big deal. Unlike deductions, tax credits directly reduce your tax bill. For example, if you owe $5,000 in income taxes, a $2,000 credit reduces your income tax liability to $3,000 ($5,000 income tax liability - $2,000 child tax credit).

You may still qualify for a partial child tax credit when you are married filing separately, but you get the most when filing jointly.

Generally, you maximize your deductions and credits when you file your taxes jointly.

3. You only file one tax return

Why file two returns when one will do? In many cases, filing a joint return saves time and money. In general, you shouldn’t be afraid of filing jointly with your spouse unless he or she has unpaid taxes or debts.


What are the disadvantages of filing taxes jointly, as a sole proprietor?

It’s not all sunshine and roses to file your taxes jointly with your spouse. You should file separately if you’re in one of the following situations:

1. You want to avoid intermingled finances

Some couples prefer not to mix their finances, and filing jointly makes that more difficult.

The result of a joint return is just one tax liability or refund amount. A couple with separate finances would have to go back into the math to figure out who is responsible for what. While it’s possible to do the calculus, it’s simpler to file separately.

2. A spouse’s unpaid debts and taxes can gum up your business filing

Back taxes and unpaid student loan debt cause issues during tax season. If your spouse failed to file taxes in previous years or is delinquent on student loan payments, the IRS can seize your joint federal tax refund. A sizable refund owed to your business might get snatched up, and that won’t feel good.

In general, couples should file their taxes separately until both spouses have their taxes in order.


Frequently asked questions sole proprietorship married filing jointly

Should I hire my spouse as an independent contractor?

Bring on your spouse as an independent contractor when you want to hire them for a defined purpose — to complete a specific client project that requires his or her skills for example. Hiring your spouse for a short time to help with a bustling holiday season would require you to treat them as a seasonal employee, not an independent contractor.

Don’t lose me here: Hiring your spouse as an independent contractor means both you and your spouse are separately sole proprietors. You and your spouse each file a Form 1040 Schedule C and Schedule SE to report income and pay self-employment taxes. The income on your separate Schedules C appears jointly on the front of your Form 1040.

Should I hire my spouse as an employee?

You can certainly hire your spouse as an employee in your sole proprietorship. But treat them like every other employee in your business, with reasonable pay and the same benefits afforded to others.

One tax perk: Your business won’t owe Federal Unemployment Insurance Act (FUTA) taxes on a sole proprietor spouse employee’s wages. But your spouse’s income is subject to Federal Insurance Contributions Act (FICA) taxes, just like other employees.

Make sure you’re putting your spouse on the payroll for the right reasons. You should hire a spouse when they are under your or another employee’s supervision. When your non-owner spouse works in your business and makes owner-level decisions, you risk the arrangement looking more like a co-ownership.

Should I form a partnership with my spouse?

By default, a business owned by a married couple is considered a partnership for tax purposes. The exception is community property states, where sole proprietorships can have two owners when the two owners are married to each other. Community property states treat couples as one taxpayer.

Running a partnership requires an annual information tax filing. While you and your spouse pay business taxes through your personal tax return, your business files Form 1065 to relay business earnings, deductions, and tax credits to the IRS. You can use tax software to help you make the additional filing.

You should consider forming a qualified joint venture with your spouse to avoid the partnership filing. Qualified joint ventures are businesses owned by a married couple and are taxed as sole proprietors. You avoid filing the partnership information return while you co-own your business.


One filing or two? It’s up to you

Married filing jointly can maximize tax deductions and credits, but it doesn’t produce the best result in every situation. It’s a good idea to consult a tax professional before deciding how to file your taxes.

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