2015-07-20 00:00:07StructuringEnglishWhile your spouse may be a great business partner, there are financial implications of starting a business together. Read some issues to...https://quickbooks.intuit.com/r/us_qrc/uploads/2015/07/istock_000057576396_small.jpgstarting a business with your spouseShould You Start a Business With Your Spouse? | QuickBooks|Should You Start a Business With Your Spouse? | QuickBooks

Should You Go Into Business With Your Spouse?

3 min read

For many business owners, having a spouse as a business partner is an ideal situation. You trust your spouse implicitly, you communicate well, and you get to spend time with the person you love. Along with emotional considerations, however, there are a variety of financial implications of going into business with your spouse. You’ll benefit from extra tax deductions and straightforward taxes, for example. But, at the same time, you may be putting your financial future at risk. Here are some issues to consider.

Simpler Filing Requirements

Normally, businesses with two owners must file as a partnership by default and use Form 1065. Partnership tax returns are complicated, and you can expect to pay a stiff fee to a CPA to file the annual return. Luckily, the IRS allows a business owned by two spouses to file as a qualified joint venture. The tax return for a joint venture is much simpler than it is for a partnership. Rather than using a separate form, you can report the business activity on Schedule C of your 1040. To qualify, both spouses must materially participate in the business and the two of you must be the only members of the joint venture.

Extra Tax Deductions

You and your spouse may choose to be business partners or, alternatively, you might hire your spouse as a high-level employee. Either way, you increase your ability to take tax deductions. Normally, business owners can’t write off the cost of their spouses’ airfare and meals if you travel together you on business trips, for example. The National Federation of Independent Businesses notes that, once your spouse is part of the business, these business travel expense can be deducted.

Simply having both spouses employed by the business can open up more deductions on your personal tax return as well. For example, couples can only deduct child care expenses if both taxpayers were employed during the year.

Additional Benefits

If you’re going to pay for employee benefits, your spouse might as well benefit too. For example, Cho Chan, a CPA in California, points out [PDF] that any health insurance premiums or contributions made to your spouse’s retirement plan are deductible as business expenses. If your spouse is an employee, you will need to pay Social Security taxes on his or her behalf. However, this isn’t always a bad thing. If your spouse hasn’t earned enough yet to qualify for Social Security benefits, paying into your spouse’s fund may help your spouse qualify — benefiting you both in the long run.

Increased Financial Risk

Just as diversifying your investment portfolio reduces risk, you may want to diversify your family’s sources of income. Profits from a small business aren’t always consistent, especially in the early stages. If you’re both working for your business, your personal financial situation could become dire if business goes south. Instead, it may be wiser to have one spouse keep a full-time job until the business is stable. If business profits decline, your spouse’s salary can keep your business afloat during tough times. Likewise, the revenue from your business could sustain your family if your spouse is laid off.

Divorce Complications

Sharing your business becomes much more complicated if you and your spouse ever divorce. Divorce expert Jeff Landers points out that spouses who contribute to or are employed by a family business can be entitled to a significant percentage of business assets. Even if the divorce doesn’t wreak havoc on the business, your ex-spouse now has valuable insider information about how your company functions. Landers notes that it’s not uncommon for ex-spouses to open competing businesses based on trade secrets and proprietary information they’ve gathered.

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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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