Page 5 - Tax Guide for Small Business

12:18 - 30-Jan-2020
Page 3 of 54
Fileid: … tions/P334/2019/A/XML/Cycle03/source
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
You do not have to carry on regular full-time busi- losses, you are partners in a partnership, whether or not
! ness activities to be self-employed. Having a you have a formal partnership agreement. Do not use
CAUTION part-time business in addition to your regular job Schedule C. Instead, file Form 1065, U.S. Return of
or business may be self-employment. Partnership Income. For more information, see Pub. 541,
Partnerships.
Trade or business. A trade or business generally is an Exception—Community income. If you and your
activity carried on to make a profit. The facts and circum- spouse wholly own an unincorporated business as com-
stances of each case determine whether or not an activity munity property under the community property laws of a
is a trade or business. You do not need to actually make a state, foreign country, or U.S. possession, you can treat
profit to be in a trade or business as long as you have a the business either as a sole proprietorship or a partner-
profit motive. You do need to make ongoing efforts to fur- ship. States with community property laws include Ari-
ther the interests of your business. zona, California, Idaho, Louisiana, Nevada, New Mexico,
Limited liability company (LLC). A limited liability Texas, Washington, and Wisconsin. A change in your re-
company (LLC) is an entity formed under state law by porting position will be treated as a conversion of the en-
filing articles of organization. Generally, for income tax tity. See Pub. 555 for more information about community
purposes, a single-member LLC is disregarded as an property laws.
entity separate from its owner and reports its income and Exception—Qualified joint venture. If you and your
deductions on its owner's federal income tax return. For spouse each materially participate as the only members of
example, if the single-member LLC is not engaged in a jointly owned and operated business, and you file a joint
farming and the owner is an individual, he or she may use return for the tax year, you can make a joint election to be
Schedule C. treated as a qualified joint venture instead of a partnership
Sole proprietor. A sole proprietor is someone who owns for the tax year. Making this election will allow you to avoid
an unincorporated business by himself or herself. You the complexity of Form 1065 but still give each spouse
also are a sole proprietor for income tax purposes if you credit for social security earnings on which retirement
are an individual and the sole member of a domestic limi- benefits are based. For an explanation of "material partici-
ted liability company (LLC) unless you elect to have the pation," see the instructions for Schedule C, line G.
LLC treated as a corporation. Only businesses that are owned and operated by
Independent contractor. People such as doctors, den- ! spouses as co-owners (and not in the name of a
tists, veterinarians, lawyers, accountants, contractors, CAUTION state law entity) qualify for the election. Thus, a
subcontractors, public stenographers, or auctioneers who business owned and operated by spouses through a limi-
are in an independent trade, business, or profession in ted liability company (LLC) does not qualify for the elec-
which they offer their services to the general public gener- tion of a qualified joint venture.
ally are independent contractors. Also, people who pro-
vide a service generally associated with the sharing (or To make this election, you must divide all items of
on-demand, gig, or access) economy, such as ride-shar- income, gain, loss, deduction, and credit attributable to
ing, may be treated as independent contractors. However, the business between you and your spouse in accordance
whether they are independent contractors or employees with your respective interests in the venture. Each of you
depends on the facts in each case. The general rule is must file a separate Schedule C and a separate
that an individual is an independent contractor if the per- Schedule SE. For more information, see Qualified Joint
son paying for the work has the right to control or to direct Ventures in the Instructions for Schedule SE.
only the result 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 Additional Information
information on determining whether you are an employee What you need to know. Table A provides a list of
or independent contractor, see Pub. 15-A, Employer's questions you need to answer to help you meet your fed-
Supplemental Tax Guide. 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-
ity service by helping them understand and meet their tax
A statutory employee has a checkmark in box 13 of his or responsibilities and enforce the law with integrity and fair-
her Form W-2, Wage and Tax Statement. Statutory ness to all.
employees use Schedule C to report their wages and Comments and suggestions. We welcome your com-
expenses. ments about this publication and your suggestions for fu-
ture editions.
You can send us comments through IRS.gov/
Business Owned and Operated FormComments. Or, you can write to: Internal Revenue
by Spouses Service, Tax Forms and Publications, 1111 Constitution
Ave. NW, IR-6526, Washington, DC 20224.
If you and your spouse jointly own and operate an Although we can’t respond individually to each com-
unincorporated business and share in the profits and ment received, we do appreciate your feedback and will

Publication 334 (2019) Page 3