joint venture marketing
Joint ventures are typically agreements between two companies that help each business grow their customer lists and their profits. However, there is one type of joint venture that keeps the business “in the family.” A qualified joint venture is a special type of agreement between a husband and wife that run a business together, but do not want to file their tax return as an official partnership.
This article lays out the terms for a qualified joint venture, so you can understand the difference between this type of agreement and a standard joint venture contract.
Why Choose a Qualified Joint Venture?
While husband-wife teams are rather common for many small businesses today, the problem arises when it comes to withholding taxes for the spouses. In the case of a traditional partnership, the role of each spouse within the company must be clearly defined to enable the IRS to determine how each individual will be held responsible for social security taxes.
In many partnership instances, one spouse is classified as the sole proprietor of the business, while the other is classified as an employee. The responsibility for social security taxes varies considerably between these two classifications. Employees must have both social security and FICA tax withheld from their income, while business sole proprietors do not.
On the other hand, a qualified joint venture states that both spouses have equal standing in the business and neither is an employee that requires withholding from his income. Instead, the company’s income, losses and deductions are split between the spouses, and each files an income tax report as a sole proprietor of the business.
This is a relatively new arrangement that was created under the 2007 Small Business and Work Opportunity Tax Act, which gave spouses another option for conducting joint business.
Criteria for a Qualified Joint Venture
To be classified as a qualified joint venture, businesses owned and operated by spouses must include the following criteria:
The spouses must own a business that is not a corporation or a limited liability company.
- Both spouses must have equal share in the profits, losses, deductions and credits within the business.
- The spouses must be the only members of the joint venture and the only partners in the business.
- Both spouses must file a separate Schedule C, which shows the profits, losses, deductions and credits for the business.
- Both spouses also file a Schedule SE to demonstrate self-employment status.
- Both spouses agree to be treated as a joint venture rather than as a partnership.
When a business meets the criteria for a qualified joint venture, the company is not required to file as a partnership and no withholding is required for either spouse. If the couple filed as a partnership in the previous year, the partnership will be considered dissolved at the end of the previous year. This enables companies to take advantage of the qualified joint venture arrangement even if they are not recently established.
Qualified joint ventures offer some tax benefits to spouses in business together. For more information about these entities, contact your attorney or accountant for your company.
christian fea is CEO of Synertegic, Inc. A joint venture marketing firm. He exemplifies how to profit from Joint Venture relationships by creating profit centers with minimal risk and maximum profitability.
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