LLC Taxation Requirements Based on Ownership Structure
If a married couple are the two (and only two) owners of a LLC, if they do not live in a Community Property State with – AZ, CA, ID, LA, NV, NM, TX, WA, & WI – then they must file Form 1065 Partnership return first to produce the Schedules K-1 for each of the two partners. Corporations file taxes using Form 1120. Limited liability companies (LLCs) can also choose to be treated as a corporation by the IRS, whether they have one or multiple owners. In that situation, they must also file their taxes using Form 1120, which means the owners must file their personal and business taxes separately.
Taxation of Husband and Wife LLCs in Community Property States
Only Husband and Wife LLCs formed in “Community Property” states are eligible to be taxed as Qualified Joint Ventures. These states include Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Under a Qualified Joint Venture, spouses only need to file one return, which translates to increased tax savings, reduced accounting fees, record keeping and other paperwork. There are additional requirements and restrictions for the Qualified Joint Venture LLC.
Tax Implications of Husband and Wife LLC Ownership
A limited liability company (LLC) offers liability protection and tax flexibility for a husband and wife business. As an LLC, the husband and wife would be members and share ownership. The LLC keeps personal and business assets separate, reducing personal liability risk.
Tax Filing for Spouses with a Jointly Owned Business
If both spouses own the business, they pay taxes on the income as owners. Pass-through entities like partnerships and LLCs pass income to owners’ personal tax returns. Each spouse reports their share, such as 50% each for a 50-50 partnership.
For a single-member LLC owned by one spouse, that spouse likely files a joint tax return with a Schedule C. The non-owner spouse does not fill out business tax forms. Filing jointly or taking the standard deduction works best.