Entrepreneurship is often considered a journey filled with challenges, triumphs, and the satisfaction of building something meaningful. For couples, this journey can be a whole new challenge.
Let’s explore the dynamics of owning a business with your spouse.
The Strength of Partnership
Launching and running a business with your spouse involves more than shared responsibilities—it’s a partnership that blends both personal and professional aspects of life. The shared vision, mutual trust, and complementary skills of a married team can create a resilient foundation for a successful business.
Trust me… it’s not always easy. Divvying up tasks can help. Scheduling time to chat business is also important so it doesn’t either get ignored or take over all discussions. After all, your life together is more than business, right?!!?
Benefits of Owning a Business With Your Spouse:
- Complementary Skills: Couples often bring different skill sets to the table, allowing for a more comprehensive approach to problem-solving and business strategy. Use those skills to your advantage.
- Unified Vision: A shared vision for the business fosters alignment in goals and values, creating a strong sense of purpose that can drive success. Be careful that you’re both on the same page here.
- Increased Flexibility: With a built-in support system, couples can navigate the challenges of entrepreneurship together, providing emotional and strategic support. Juggling work and travel? This makes you a great team and makes every challenge an opportunity for growth.
- Streamlined Decision-Making: The intimate nature of the relationship often leads to efficient decision-making processes, allowing for quicker responses to business challenges. On the other hand, it could also lead to more heated discussions and disagreements on decisions. Make sure to hear your partner out and list the pros and cons if needed so you can easily get to a decision together.
Qualified Joint Venture
There is a special federal tax classification for a business co-owned by spouses – a Qualified Joint Venture (QJV). Yes. You read that right. Owning a business with your spouse can be a qualified joint venture.
A QJV is a business entity in which the spouses are the only members and each spouse has an ownership interest of 50%.
This classification allows the couple to split their income equally, which can be beneficial. Community property states even allow for an LLC owned by two spouses to be treated as a qualified joint venture.
To qualify for the Qualified Joint Venture in a community property state, you must satisfy the following requirements:
-The married pair are the only LLC owners (there are no other people or firms that own the LLC).
-Both spouses actively contribute to and manage the firm.
-The married pair files a joint federal income tax return.
-The LLC has not chosen to be taxed as a corporation.
By making this election, all income and expenses from the business will be divided equally between the spouses on two separate Schedule Cs as part of the 1040.
Not sure about entity selection? I’ve got you covered.
Being Treated as a Partnership: A Strategic Option
In addition to the Qualified Joint Venture (QJV), owning a business with your spouse also has the option to be treated as a partnership for tax purposes. This offers more flexibility in terms of ownership percentages and can be particularly beneficial in certain business scenarios.
Key Aspects of Being Treated as a Partnership:
- Ownership Flexibility: Unlike the QJV, being treated as a partnership allows for a more flexible distribution of ownership percentages. This can be advantageous when one spouse has a greater involvement in the business.
- Allocation of Profits and Losses: Spouses can allocate profits and losses based on their agreed-upon ownership percentages, providing a customizable approach to the financial structure of the business. This can be a more strategic approach to tax planning.
- Tax Filings: While the QJV requires separate Schedule C filings, being treated as a partnership involves filing a Form 1065. The business itself doesn’t pay taxes; instead, profits and losses are passed through to each spouse’s individual tax return or jointly filed 1040.
- Flexibility in Material Participation: Unlike the QJV, which requires both spouses to materially participate in the business, being treated as a partnership allows for more flexibility in defining each spouse’s level of involvement.
Tips for Success When Owning a Business with Your Spouse
- Clear Communication: Establish open and transparent communication to ensure that both partners are on the same page regarding business decisions and long-term goals. This can help stretch your marriage.
- Define Roles: Clearly define each spouse’s role within the business to maximize efficiency and prevent overlap or confusion. No need to be arguing over things or both completing the same tasks. Divide and conquer!
- Separate Work and Personal Life: Establish boundaries to maintain a healthy work-life balance and prevent business stressors from affecting personal relationships. If it helps never discuss business over dinner (unless it’s a specific dinner meeting) or in bed or whatever place works for you as a couple. Make sure that all your time together isn’t about business.
- Seek Professional Guidance: Consult with a tax professional or business advisor to ensure that your venture is structured optimally for both operational and tax efficiency. There are different reasons to have different tax structures. Each situation is unique.
- Celebrate Milestones Together: Recognize and celebrate both personal and business achievements to strengthen the bond between spouses and motivate continued success. Remember to be gentle if things go wrong and to always celebrate the good times together!
Launching a business as a couple is a unique and rewarding journey that combines the strengths of partnership with the excitement of entrepreneurship. Couples can navigate business together which can be either good or bad depending on your relationship. But if you leverage each other’s strengths and maintain clear communication, owning a business with your spouse can provide a legacy that lasts both personally and professionally.
Not ready to go into business with your spouse?
If you’re not interested in being in business with your spouse, you may want to consider other options.
Sole Proprietor or Single-member LLC
One spouse operates as a sole proprietor or single-member LLC. They run the business, do the work, make the decisions, etc. with little to no input from their spouse. There’s one Schedule C for that spouse as part of the 1040.
Hire Your Spouse As An Employee
Another option is to hire your spouse as an employee. However, you will need to pay payroll taxes and file employment tax returns. This could also create other odd dynamics. If it works for you, then perfect. If the idea of being your spouse’s boss is odd or unsettling, don’t pick this option.
There are a number of things to consider when choosing the right business structure for a spouse-owned business. Be sure to consult with a professional who can help you make the right decision for your business.