When both members of a married couple participate in an unincorporated business venture, must it be treated as a husband-wife partnership for federal tax purposes? Answer: maybe, or maybe not. Figuring out the answer is important because it can have a huge impact on the couple’s self-employment tax situation.
Husband-wife partnerships must also file annual federal returns on Form 1065 along with the related Schedules K-1. As you know, partnership returns can be a pain. For these reasons, you generally want to avoid husband-wife partnership status when possible.
When Does the Husband-Wife Partnership Actually Exist for Tax Purposes?
Good question. As you can see from the preceding example, the self-employment tax can make the husband-wife partnership an expensive proposition. Of course, the IRS would love it if you had to treat it that way.
Not surprisingly, several IRS publications attempt to create the impression that involvement by both spouses in an unincorporated business activity usually creates a partnership for federal tax purposes.
IRS Publication 334 (Tax Guide for Small Business) says the following:
If you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership, whether or not you have a formal partnership agreement.
In other words, you don’t have to believe that you have a husband-wife partnership to have a husband-wife partnership for tax purposes.
Similarly, IRS Publication 541 (Partnerships) says:
If spouses carry on a business together and share in the profits and losses, they may be partners whether or not they have a formal partnership agreement. If so, they should report income or loss from the business on Form 1065.
Good News. The Paycheck Protection Program is a Grant converting Loan for those who qualify.
Here's how your loan will turn into a grant:
Caveat. The amount that is forgiven will be reduced for businesses that lay off employees during the first eight weeks following the loan. Companies that reduce wages of employees who make less than $100,000 per year by 25 percent or more will also have the forgivable amount reduced by the amount of the pay cut.
Loophole. Businesses that have already let employees go before accepting the loan and are trying to rehire them will not be subject to such penalties, however. And if those businesses rehire employees after accepting the loan, they'll receive additional credit to cover their wages.
You will need to keep accurate records, as we are not sure how they will analyze your documents or if they will be subject to random audits at a later date.
Contact us if you need help keeping proper records.
As you likely know, the TCJA increased bonus depreciation to 100 percent. Unlike most tax provisions that involve a tax election, this one requires you to elect out if you don’t want it.
For example, you (or your corporation) buy two $50,000 trucks, each with a gross vehicle weight rating of 6,500 pounds and a bed length of 6.5 feet. You use the trucks 100 percent for business. Because of the weight and bed size, the trucks are exempt from the luxury passenger vehicle depreciation limits.
You have five choices on how to deduct the vehicles on your 2019 tax return (the one you are filing or about to file—we are in tax season):
Okay, you get the big picture. Two trucks, each with a cost of $50,000 and both exempt from the luxury vehicle limits. Five choices as to the deduction.
Because of their gross vehicle weight, the vehicles mentioned above were exempt from the luxury vehicle depreciation limits that apply to:
Had the vehicles failed the weight test, their bonus depreciation for 2019 would have been limited to $18,100
CARES 2” in the WorksLawmakers are continuing talks on a "phase four" economic relief package in response to the COVID-19 global pandemic.
To that end, the House’s "CARES 2" package is currently in the works and could see a floor vote as early as this month.
"CARES 2"President Trump signed into law the $2 trillion bipartisan Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 27. The CARES Act is known on Capitol Hill as the third phase of legislation aimed to address the national emergency. However, House Speaker Nancy Pelosi, D-Calif., has said that a House floor vote on a "CARES 2" package could happen later in April.
"The acceleration of the coronavirus crisis demands that we continue to legislate," Pelosi said in a "Dear Colleagues" letter sent out to members during the week of April 6. "We must double down on the down-payment we made in the CARES Act by passing a CARES 2 package, which will extend and expand this bipartisan legislation to meet the needs of the American people," she added. According to Pelosi, the CARES 2 package would (1) go further in assisting small businesses (including farmers), (2) extend and strengthen unemployment benefits, and (3) distribute additional direct payments.
"Our communities cannot afford to wait, and we must move quickly," Pelosi wrote. "It is my hope that we will craft this legislation and bring it to the Floor later this month."
Paycheck Protection ProgramMeanwhile, the Trump administration is seeking an increase in funding for the CARES Act’s Paycheck Protection Program. Accordingly, several bipartisan lawmakers have called for congressional action to provide the necessary funding needed for small businesses. The administration is reportedly asking for an additional $250 billion for the largely overrun loan program.
"Through this tax break, workers can get back on payrolls and stay there. By working with their bank, small businesses can get eight weeks of cash-flow assistance through 100 percent federally guaranteed loans," House Ways and Means ranking member Kevin Brady, R-Tex., said on April 7. "If the business [including churches] uses the money to maintain payroll, the portion of the loans used for covered payroll costs, interest on mortgage obligations, rent, and utilities would be forgiven."
Likewise, Senate Majority Leader Mitch McConnell, R-Ky., called for swift action on the matter. "Congress needs to act with speed and total focus to provide more money for this uncontroversial bipartisan program," McConnell said on April 7. "I will work with [Treasury] Secretary Steven Mnuchin and [Senate Minority Leader Chuck] Schumer and hope to approve further funding for the Paycheck Protection Program by unanimous consent or voice vote during the next scheduled Senate session on Thursday."
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Who will get a payment? How much should you expect?
To qualify for a payment:
Single filers who earn less than $75,000 a year, will get up to $1,200, plus up to $500 for each qualifying child they claim as a dependent. If you earn $75,000-$99,000, you’ll receive a smaller amount, depending on your earnings.
Joint filers who earn less than $150,000 a year, will get up to $2,400, plus up to $500 for each qualifying child they claim as a dependent. If you earn between $150,000-$198,000, you’ll qualify for a partial payment.
What if you don’t usually file taxes or you haven’t filed your 2019 taxes yet?
If you’re a senior citizen, receive Social Security benefits or are a railroad retiree, and don’t usually have to file a tax return, you could still qualify to get a payment. Go to the IRS website for everything you need to know about eligibility.
Need to file but haven’t done it yet? With the recent tax extension, you now have until July 15 to file. The IRS will look at the information you filed for 2018. If your 2018 tax return, disqualifies you, then file your 2019 right away as you may qualify that way. Contact us we will get you filed right away.
Do you need to do anything to get your CARES Act payment?
No. There isn’t an application process and if you qualify, your payment will be sent to you automatically.
How will you be paid?
This depends on how you usually get your tax refunds.
You should get a faster CARES Act payment if the IRS has this info. The IRS will be setting up a portal in the coming weeks. Check this page on the IRS website for updates.
When will your money arrive?
The IRS reports it has started sending out its first direct payments this week. The first payments will go to Americans who have their direct deposit information on file with the IRS.
You may start to see funds from the CARES Act as “pending” underneath a future date when checking your account in online or mobile banking. Most banks will not have the funds from the Federal Government until that date, so it is likely they can’t deposit the funds before then.
Paper checks will start to go out at the beginning of May and could take up to 20 weeks for all the checks to be sent.
Expecting a direct deposit and want to know when it’s arrived?
Just log into your financial institution's account or mobile app. Your deposit will show up here as soon as they receive it.
And if you have a question that isn’t answered leave a comment below.
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Keana Spencer is an Accountant, Entrepreneur, and Educator to her clients, with a strong passion. Keana has over 10 years of experience and through her practice, she is a source of knowledge and strategies to her clients.