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Form 1065 or Schedule C

Mel_viarnB

My wife and I started a virtual bookkeeping service in July 2023 in Connecticut. I am the managing member and have not drawn income from this business minus utilities, of which 10% is for home office expenses. We file as married filing jointly. My question: Do Form 1065 and Form CT-1065 need to be filed, or can we use Schedule C since we file jointly and no income is taken out?

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Accepted answers

MatthewD

Hi MelvinBar,

Being registered as an LLC with CT, will change your federal filing requirement. You cannot file a federal return as a "Qualified Joint Venture" using a Schedule C for each spouse. You will need to use the Form 1065.

See "A Business Owned and Operated by the Spouses through a Limited Liability Company Does Not Qualify for the Election" at this link.

The state of Connecticut requires an annual report filing for an LLC. For more information about the CT filing requirement see this FAQ, "What is an annual report and how do I file?" on the FAQ Business Entities page of CT.gov.

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kiarab

Hi,

So married filing jointly couples do have the option of reporting their income from their partnership (if it is an unincorporated business) on a Schedule C instead of a 1065. It is called a "Qualified Joint Venture" and if the only members are a married couple filing a joint return, they can elect to not be treated as a partnership for federal business purposes. You can still have income, expenses, etc, and file this way.

Basically, you will each file a Schedule C and divide out the income, expenses, etc, between the two of you according to the spouse's respective interest in the business.

For more information:

https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorporated-businesses

I'll also include this link from the IRS. It is their publication on Partnership in case you want to review that.

https://www.irs.gov/publications/p541

Mel_viarnB

Is that also the case if our company is a registered LLC with the state of Connecticut?

MatthewD

Hi MelvinBar,

See "A Business Owned and Operated by the Spouses through a Limited Liability Company Does Not Qualify for the Election" at this link.

MatthewD

https://community.freetaxusa.com/discussion/comment/364#Comment_364

Since you are registered with the state as an LLC, you will need to use a Form 1065 to file a federal partnership return. The each of you use a Schedule K-1 to report your share of the income on your joint tax return.