Husband/Wife Joint Venture? - Revisited


P

Paultry

Prior discussion of this issue here:

http://groups.google.com/group/misc...6be8?lnk=gst&q=joint+venture#aae01890bac66be8

IRS guidance here:

http://www.irs.gov/businesses/small/article/0,,id=177376,00.html

The "Small Business and Work Opportunity Tax Act of 2007"
allows husband and wife small business owners to elect to
treat their business as a joint venture rather than as a
partnership. I'm helping husband and wife joint filers,
who, like many married couples, own and operate their farm
together, but, to avoid the expense and complexity of a
partnership, have historically reported farm income,
expenses, and profit on Schedule F and Schedule SE in the
husband's name and social security number.

The new law was apparently intended to provide the secondary
spouse a share of the farm's income and social security
credits without the need for a Form 1065 and K-1s - a good
idea to resolve a long standing problem. However, the tax
prep software I use does not provide an automated method to
split depreciation expense between husband and wife.
Creating a new Schedule F for the wife requires the creation
of a new, pro-rated depreciation worksheet for each farm
asset (in this case, over 75 items), and editing of the
husband's 75+ depreciation worksheets to reflect his
interest in the business. Overriding Schedule F
depreciation expense with a manual computation of a
percentage of the business's total depreciation is not an
acceptable option as it prohibits e-filing of the return.
Apparently, IRS (and tax prep software developers) gave
little thought to the additional burden placed on, and the
potential confusion caused to joint venture taxpayers to
create and maintain two pro-rated depreciation schedules for
one business. (Not to mention, later, remembering to make
double entries for asset disposal.) This is a time
consuming process, with significant potential for error,
that many small business owners won't understand well enough
to do on their own, and an extra expense they won't pay to
have done by others.

It seems the desired result could have easily been obtained
(as Harlan suggested) by having the joint venture husband
and wife business owners maintain one set of books and one
depreciation schedule for the business, file one joint
Schedule C or Schedule F, and then prepare simple election
statements (Schedule SE?) to apportion profit or loss to
reflect each spouse's participation in the business. This
would simplify record keeping and tax return preparation,
make the qualified joint venture filing process more
accurate, easily understood, and likely to be used, and
promote overall tax compliance.

I've communicated my concerns to my tax prep software
provider and to IRS. Meanwhile, any suggestions from anyone
with a user-friendly way to accomplish joint venture filing?
 
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H

Harlan Lunsford

Paultry said:
Prior discussion of this issue here:

http://groups.google.com/group/misc...6be8?lnk=gst&q=joint+venture#aae01890bac66be8


IRS guidance here:

http://www.irs.gov/businesses/small/article/0,,id=177376,00.html

The "Small Business and Work Opportunity Tax Act of 2007" allows husband
and wife small business owners to elect to treat their business as a
joint venture rather than as a partnership. I'm helping husband and
wife joint filers, who, like many married couples, own and operate their
farm together, but, to avoid the expense and complexity of a
partnership, have historically reported farm income, expenses, and
profit on Schedule F and Schedule SE in the husband's name and social
security number.

The new law was apparently intended to provide the secondary spouse a
share of the farm's income and social security credits without the need
for a Form 1065 and K-1s - a good idea to resolve a long standing
problem. However, the tax prep software I use does not provide an
automated method to split depreciation expense between husband and wife.
Creating a new Schedule F for the wife requires the creation of a new,
pro-rated depreciation worksheet for each farm asset (in this case, over
75 items), and editing of the husband's 75+ depreciation worksheets to
(balance snipped for brevity's sake.

I can sympathize, or empathize with you. I have a husband and wife
client down in Dothan with an antique shop and my software, TAxwise,
doesn't have the capability so I had to do it the old fashioned way,
like you did.

Since this is new, I suspect software companies will work on it before
next year, though.

Your case though looks to be a good candidate for printing the return
and one form 4562, and then overridden with a second one created. AFter
all, those convenient software asset worksheets don't go with the return
anyway.

ChEAr$$$,
Harlan Lunsford, EA n LA
 

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