If you’re a driven, self employed individual, you will have to decide which tax form you are required to file. A Schedule C reports income from business you conduct as a sole proprietor. Income and expenses you report on a Schedule C flow to the front page of your 1040 (your individual tax return) so you do not have to file a whole other business return. You may be able to file a Schedule C, but there a certain circumstances that could alter this decision.
If you are engaged in a business alone, then you do not have much to consider. You will most likely be filing a Schedule C for all of your business activities. However if you are married and you run the business with your spouse, there are a few things to consider.
If you and your spouse own a business together and have not incorporated, you are technically considered a partnership. Partnerships must file Form 1065 which are more in depth than a Schedule C, and the income flows through to your 1040. There are ways around this filing requirement though. One way is by electing to treat the business as a Qualified Joint Venture and the other is to treat your business as Community Property.
Qualified Joint Venture: You can elect to be treated as a qualified joint venture if you meet certain requirements. You and your spouse must both materially participate in the business. If your business is your sole source of income, this shouldn’t be problem. Material participation, put simply, means that you participated in the business on a regular, continuous, and substantial basis. For many people this isn’t an issue, but if you believe it is, contact your tax professional, leave me a question in the comments below, or read the instructions for Schedule C. You and your spouse must also be the only owners of the business, and you both must be filing a joint tax return for the year. By making this election, you and your spouse “still give each of you credit for social security earnings on which retirement benefits, disability benefits, survivor benefits, and insurance (Medicare) benefits are based” (Schedule C Instructions). In order to make this election, you and your spouse must each file your own Schedule C on your jointly filed return. You may also be required to file your own Schedule SE for self employment tax as well.
Community Property: The other option you have is to treat your business as community property. Currently there are only 9 states with community property laws. Community property is property that is owned 50/50 between husband and wife no matter who acquired the property. If only one spouse participates in the business, that spouse claims all of the self-employment income for him or herself. If they both participate, the income is split between the two spouses based on their share of the business.
If you have any questions, feel free to leave me a message and I can help you out. Comments and suggestions are also welcome!