bake - August 2012 - 12

tax tips

A Family Affair
Operating your own business has plenty of obvious atvantages. One primary beneiﬁt is the ability to hire family members. However, the employment tax requirements for family employees may vary from those that apply to other employees. Below are some issues to consider when operating a husband-andwife business. One spouse employed by another If your spouse is your employee, not your partner, you must pay Social Security and Medicare taxes for him or her. The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax. For more information, refer to Publication 15, Circular E, Employer Tax Guide. Under the provision, a qualiﬁed joint venture conducted by How spouses earn Social Security beneﬁts A spouse is considered an employee if there is an employeremployee type of relationship; i.e., the ﬁrst spouse substantially controls the business in terms of management decisions and the second spouse is under the direction and control of the ﬁrst spouse. If such a relationship exists, then the second spouse is an employee subject to income tax and FICA (Social Security and Medicare) withholding. However, if the second spouse has an equal say in the affairs of the business, provides substantially equal services to the business and contributes capital to the business, then a partnership exists and the business’ income should be reported on Form 1065, US Return of Partnership Income. Both spouses carrying on the trade or business On May 25, 2007 the Small Business and Work Opportunity Tax Act of 2007 was signed into law and affected changes to the treatment of qualiﬁed joint ventures of married couples not treated as partnerships. The provision is effective for taxable years beginning after December 31, 2006. The provision generally permits a qualiﬁed joint venture whose only members are a husband and wife ﬁling a joint return not to be treated as a partnership for Federal tax purposes. A qualiﬁed joint venture is a joint venture involving the conduct
SOURCE: WWW.IRS.GOV

The mother, daughter and son-in-law team at Mud Pie Vegan Bakery in Kansas City, MO. Read more about their specialty cakes on page 44.

of a trade or business, if (1) the only members of the joint venture are a husband and wife, (2) both spouses materially participate in the trade or business and (3) both spouses elect to have the provision apply.

a husband and wife who ﬁle a joint return is not treated as a partnership for Federal tax purposes. All items of income, gain, loss, deduction and credit are divided between the spouses in accordance with their respective interests in the venture. Each spouse takes into account his or her respective share of these items as a sole proprietor. Thus, it is anticipated that each spouse would account for his or her respective share on the appropriate form, such as Schedule C. For purposes of determining net earnings from self-employment, each spouse’s share of income or loss from a qualiﬁed joint venture is taken into account just as it is for Federal income tax purposes under the provision (i.e., in accordance with their respective interests in the venture). This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement beneﬁts are based. However, this may not be true if either spouse exceeds the social security tax limitation. Refer to Publication 553, Highlights of 2008 Tax Changes, for further information about self-employment taxes. For more information on qualiﬁed joint ventures, refer to Election for Husband and Wife Unincorporated Businesses.

12 < AUG 2012 | bakemag.com

http://WWW.IRS.GOV http://www.bakemag.com

bake - August 2012

Table of Contents for the Digital Edition of bake - August 2012