Page 9 - Small Business Taxes

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The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Trade or business. A trade or business is generally an the business either as a sole proprietorship or a partner-
activity carried on to make a profit. The facts and circum- ship. States with community property laws include Ari-
stances of each case determine whether or not an activity zona, California, Idaho, Louisiana, Nevada, New Mexico,
is a trade or business. You do not need to actually make a Texas, Washington, and Wisconsin. A change in your re-
profit to be in a trade or business as long as you have a porting position will be treated as a conversion of the en-
profit motive. You do need to make ongoing efforts to fur- tity. See Pub. 555 for more information about community
ther the interests of your business. property laws.
Limited liability company (LLC). An LLC is an entity Exception—Qualified joint venture. If you and your
formed under state law by filing articles of organization. spouse each materially participate as the only members of
Generally, for income tax purposes, a single-member LLC a jointly owned and operated business, and you file a joint
is disregarded as an entity separate from its owner and return for the tax year, you can make a joint election to be
reports its income and deductions on its owner's federal treated as a qualified joint venture instead of a partnership
income tax return. For example, if the single-member LLC for the tax year. Making this election will allow you to avoid
is not engaged in farming and the owner is an individual, the complexity of Form 1065 but still give each spouse
they may use Schedule C. credit for social security earnings on which retirement
Sole proprietor. A sole proprietor is someone who owns benefits are based. For an explanation of "material partici-
an unincorporated business by themselves. You are also pation," see the instructions for Schedule C, line G.
a sole proprietor for income tax purposes if you are an in- Only businesses that are owned and operated by
dividual and the sole member of a domestic LLC unless ! spouses as co-owners (and not in the name of a
you elect to have the LLC treated as a corporation. CAUTION state law entity) qualify for the election. Thus, a
Independent contractor. People such as doctors, den- business owned and operated by spouses through an
tists, veterinarians, lawyers, accountants, contractors, LLC does not qualify for the election of a qualified joint
subcontractors, public stenographers, or auctioneers who venture.
are in an independent trade, business, or profession in To make this election, you must divide all items of
which they offer their services to the general public are income, gain, loss, deduction, and credit attributable to
generally independent contractors. However, whether the business between you and your spouse in accordance
they are independent contractors or employees depends with your respective interests in the venture. Each of you
on the facts in each case. The general rule is that an indi- must file a separate Schedule C and a separate
vidual is an independent contractor if the person paying Schedule SE. For more information, see Qualified Joint
for the work has the right to control or to direct only the re- Ventures in the Instructions for Schedule SE.
sult of the work and not how it will be done. The earnings
of a person who is working as an independent contractor
are subject to self-employment tax. For more information Additional Information
on determining whether you are an employee or inde-
pendent contractor, see Pub. 15-A, Employer's Supple- What you need to know. Table A provides a list of
mental Tax Guide. questions you need to answer to help you meet your fed-
eral tax obligations. After each question is the location in
this publication where you will find the related discussion.
Are You a Statutory Employee? The IRS mission. Provide America's taxpayers top-qual-

A statutory employee has a checkmark in box 13 of their ity service by helping them understand and meet their tax
Form W-2, Wage and Tax Statement. Statutory responsibilities and enforce the law with integrity and fair-
employees use Schedule C to report their wages and ness to all.
expenses. Comments and suggestions. We welcome your com-
ments about this publication and suggestions for future
editions.
Business Owned and Operated You can send us comments through IRS.gov/
by Spouses FormComments. Or, you can write to the Internal Reve-
nue Service, Tax Forms and Publications, 1111 Constitu-
If you and your spouse jointly own and operate an tion Ave. NW, IR-6526, Washington, DC 20224.
unincorporated business and share in the profits and Although we can’t respond individually to each com-
losses, you are partners in a partnership, whether or not ment received, we do appreciate your feedback and will
you have a formal partnership agreement. Do not use consider your comments and suggestions as we revise
Schedule C. Instead, file Form 1065, U.S. Return of our tax forms, instructions, and publications. Don’t send
Partnership Income. For more information, see Pub. 541, tax questions, tax returns, or payments to the above ad-
Partnerships. dress.
Exception—Community income. If you and your Getting answers to your tax questions. If you have a
spouse wholly own an unincorporated business as com- tax question not answered by this publication or the How
munity property under the community property laws of a To Get Tax Help section at the end of this publication, go
state, foreign country, or U.S. possession, you can treat to the IRS Interactive Tax Assistant page at IRS.gov/

Publication 334 (2022) Page 3