National Mom and Pop Business Day is the day set aside in the U.S. to celebrate family owned small businesses. In honor of these folks, let’s look at some of the special tax considerations for small business owners.
Married couples who own a small business can file on Schedule C and get Social Security credits for each taxpayer. The IRS allows taxpayers who jointly own a business to elect to file two Schedule C’s for the business by splitting the income and expenses based on each taxpayer’s investment. Both taxpayers must be actively involved in the business to qualify for this option called a qualified joint venture (QJV) election. Using the QJV election allows married taxpayers who own a business together to avoid the more complex and costly filing of a partnership return. Business owners who meet all the of the following qualify:
- A husband and wife team are the only owners of the business
- Taxpayers must be recognized as married for federal income tax filing
- Taxpayers must file a joint tax return
- Both taxpayers must be active participants in the business
- If not a new business, the spouses filed a partnership return in previous years
What are the benefits?
Each spouse pays into Social Security for future benefit protection, Schedule C is a less complex form to complete than the partnership return and the taxpayer completes the portion of the return for the business and their individual return all at one time, and a QJV filed on a Schedule C generally does not require an employer identification number (EIN) unless there are employees.
Some of the other rules governing small business for this year include: Taxpayers are still eligible for 100 percent bonus depreciation on tangible assets placed in service during 2012; Up to $250,000 of Leasehold Improvements are eligible for section 179 deduction. Leasehold improvements are often the remodeling a business does to the space rented for their business; Business owners that accept credit cards and debit cards will receive a Form 1099-K reporting all credit and debit card payments they received last year. Each payments settlement entity (PSE) that collected funds for the merchant will send a Form 1099-K. This income should be included on the Schedule C only once since it is possible to have it reported on a 1099-MISC also; Taxpayers may deduct 100 percent of theirs and their family’s health insurance cost as a direct deduction from income on Form 1040; Common required tax and state mandated employer costs: Unemployment insurance (FUTA and SUTA), Worker’s Compensation insurance, Medicare and Social Security taxes.
If you’re a small business owner, don’t forget to review your tax situation throughout the year and complete estimated tax payments each quarter.