A limited liability company (LLC) is a business structure that combines the benefits of a corporation and a partnership. An LLC structure limits the owners' liability for the LLC's actions and debts, much like a corporation, but provides the pass-through taxation benefits of a partnership. A husband and wife who own a limited liability corporation have a number of options when it comes time to file their taxes.
Limited Liability Company
You and your spouse may operate a personal business as an LLC. This type of business structure is authorized and regulated by the individual states, but is not recognized by the IRS as an entity for federal income tax purposes. At tax time you will have to decide whether to file taxes for the LLC as a corporation, partnership or sole proprietorship. The type of business structure you file as will determine the type of forms you need to file with the IRS.
Form 8832
File Form 8832 to tell the IRS how you want your LLC to be classified. If you and your spouse are the sole owners, you may choose to be treated as either a corporation or a partnership. You may elect to have one spouse own the LLC and classify the other spouse as an employee, in which case you may choose to have the LLC treated as a disregarded entity and file your taxes as a sole proprietorship. If you don't file Form 8832 and you are both listed as owners of the company, the IRS will automatically treat your LLC as a partnership.
Partnership
You and your spouse may treat your LLC as a partnership. You will file the LLC's federal income tax return using IRS Form 1065, U.S. Return of Partnership Income. You and your spouse must each report your individual shares of the income generated by the partnership income. You will need to include a Schedule K-1 for yourself, your spouse and any other partners who may have an interest in the LLC.
Sole Proprietorship
You can usually only file your federal income tax return for your LLC as a sole proprietorship if the entire LLC is owned by one spouse. The other spouse may work as an employee, but may not be an owner. You and your spouse may be able to both file as sole proprietors of the LLC if you meet the requirements of a qualified joint venture. You and your spouse must file a joint return. You and your spouse must be the only members of the joint venture. You and your spouse must both materially participate in the operation of the LLC and you must divide the income and expenses of the LLC based on each spouse's interest in the LLC. You and your spouse must file separate Schedule C's with your joint tax return.
Read More: Tax Differences Between an LLC & a Sole Proprietorship
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