When a husband and wife own a business, they enjoy numerous tax benefits together. However, if you own a business with your spouse, you must make sure that you both benefit from the tax advantages, not just one of you. Many joint-venture couples make the mistake of filing tax returns that show either the husband or the wife as the business owner, thus missing out on tax breaks they both could receive.
Spouses who co-own a business can both take deductions for business expenses. You should divide the expenses according to the share of the business each spouse owns. This allows each spouse to reduce the amount of income claimed. If only one spouse claims the business expenses, the other spouse may report a higher income and therefore incur a higher tax rate. For joint returns, spouses should still show joint ownership of the company and divided business expenses, in case they have to prove who owns the business to lenders, vendors and investors. Each spouse on the joint return should attach a separate Schedule C (Form 1040), Profit or Loss From Business (Sole Proprietorship).
Spouses may each deduct the cost of their health insurance premiums, because for tax purposes they are partners. Each partner may deduct health care costs, including not only premiums, but deductible payments and co-payments. If only one spouse owned the business, the other spouse’s health expenses could not be deducted as a business expense. In that case, the other spouse could only claim medical expenses if they exceed 7.5 percent of his adjusted gross income.
A couple can write off business trips they take together. If you take this deduction, you may have to prove the trip had a business purpose and was not a vacation. Keep all of your receipts and indicate the purpose of the trip on those receipts. Travel qualifies as a business deduction if the purpose of the trip is to meet clients, scout real estate locations, become familiar with new markets and meet with vendors, to name a few examples.
Social Security and Medicare
One of the benefits of claiming a joint venture for spouses is that they both get credit for Social Security and Medicare contributions. If one spouse claims the business, the same amount of self-employment tax is due (Social Security plus Medicare), but only one spouse will get the credit. If a couple claims a joint venture, they both get credit for Social Security and Medicare contributions as individuals.
- IRS.gov: Election for Husband and Wife Unincorporated Businesses
- BrightHub.com: The Ins and Outs of Husband and Wife Business Partners
- AskTaxGuru.com: Seven Tax Advantages to Hiring Your Spouse
- SmallBusiness.FoxBusiness.com: How to File Taxes When Your Spouse is Your Business Partner
- EverymanBusiness.com: Husband-Wife Partnership
Kevin Johnston writes for Ameriprise Financial, the Rutgers University MBA Program and Evan Carmichael. He has written about business, marketing, finance, sales and investing for publications such as "The New York Daily News," "Business Age" and "Nation's Business." He is an instructional designer with credits for companies such as ADP, Standard and Poor's and Bank of America.