SE Tax on Family Owned Business


M

Marie Murrell

I purchased several oil and gas working interests in 1999. I
used joint funds (my husband and mine) and had the division
orders titled in mine and his name jointly with right of
survivorship.

The only thing to do with these working interests is
(generally) to deposit checks, pay bills, and occasionally
decide to invest further or decline. I do the bookkeeping,
but decision making is joint.

I have always reported this business on schedule C under my
SS #. (I don't know why except that we purchased the
interests from father!). However, I started looking closer
at this, and wonder if there would be good cause to report
this as a partnership and flow 1/2 income to my husband and
1/2 income to me.

My husband maxes out his SS through his full time W-2 job.
Any income flowing through to him from the partnership would
be SS tax free (only Medicare would apply). My other income
is not enough to max out SS, therefore I feel we may be
paying too much in SS by filing Schedule C under my SS #
alone.

The only reason to file the partnership return would be to
decrease SE tax, but I think I should have been doing this
all along.

If so, what do I do now? Do I simply start filing a 1065?

Thoughts?

MLMurrell
 
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D

David Woods, EA, ChFC, CLU

Marie Murrell said:
I purchased several oil and gas working interests in 1999. I
used joint funds (my husband and mine) and had the division
orders titled in mine and his name jointly with right of
survivorship.

The only thing to do with these working interests is
(generally) to deposit checks, pay bills, and occasionally
decide to invest further or decline. I do the bookkeeping,
but decision making is joint.

I have always reported this business on schedule C under my
SS #. (I don't know why except that we purchased the
interests from father!). However, I started looking closer
at this, and wonder if there would be good cause to report
this as a partnership and flow 1/2 income to my husband and
1/2 income to me.

My husband maxes out his SS through his full time W-2 job.
Any income flowing through to him from the partnership would
be SS tax free (only Medicare would apply). My other income
is not enough to max out SS, therefore I feel we may be
paying too much in SS by filing Schedule C under my SS #
alone.

The only reason to file the partnership return would be to
decrease SE tax, but I think I should have been doing this
all along.

If so, what do I do now? Do I simply start filing a 1065?
No, you report half of the income on each of your Schedule
C's and go from there. You have joint titled assets not a
partnership.
 
B

BRaskinCPA

I purchased several oil and gas working interests in 1999. I
used joint funds (my husband and mine) and had the division
orders titled in mine and his name jointly with right of
survivorship.

The only thing to do with these working interests is
(generally) to deposit checks, pay bills, and occasionally
decide to invest further or decline. I do the bookkeeping,
but decision making is joint.

I have always reported this business on schedule C under my
SS #. (I don't know why except that we purchased the
interests from father!). However, I started looking closer
at this, and wonder if there would be good cause to report
this as a partnership and flow 1/2 income to my husband and
1/2 income to me.

My husband maxes out his SS through his full time W-2 job.
Any income flowing through to him from the partnership would
be SS tax free (only Medicare would apply). My other income
is not enough to max out SS, therefore I feel we may be
paying too much in SS by filing Schedule C under my SS #
alone.

The only reason to file the partnership return would be to
decrease SE tax, but I think I should have been doing this
all along.

If so, what do I do now? Do I simply start filing a 1065?

Thoughts?
You cannot just start filing a 1065 without actually forming
a partnership.

You could file a joint schedule c which would split the SE
income to the two of you. How the oil interests are titled
is the controlling factor here. If they are in your name
alone, then you cannot split the income.

Bruce Raskin, CPA
Small Business and Individual Tax and Accounting Services
 
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M

Marie L. Murrell,

Marie Murrell said:
I purchased several oil and gas working interests in 1999.
I forgot to mention we do NOT live in a community property
state.

Marie
 

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