Can I File Taxes as Sole Proprietor and Jointly with My Wife?

By Jeffry Olson, J.D.

Can I File Taxes as Sole Proprietor and Jointly with My Wife?

By Jeffry Olson, J.D.

Income from a sole proprietorship passes through to the owner, who pays taxes on it with their individual income taxes. Individuals with this kind of business file a Profit or Loss from Business (Schedule C) form with their income tax return. Filing a Schedule C for income earned from a this kind of company does not impact one's ability to file taxes jointly with a spouse.

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Tax Forms

The Internal Revenue Service (IRS) requires most self-employed individuals to fill out and submit a Schedule C. They must include it with their tax return if they had any income from self-employment. Most individuals filing a Schedule C must also file a Self-Employment Tax (Schedule SE) form.

Some taxpayers can file the much simpler Net Profit from Business (Schedule C-EZ) form instead of Schedule C. Sole proprietors who do not have more than $5,000 in business expenses, do not hold business inventory throughout the year, report a net profit, do not claim a home-office deduction, and have no employees can use Schedule C-EZ, which asks for business receipts and expenses.

Self-Employment Taxes

Traditional employees pay Social Security tax and Medicare tax through paycheck withholding, and their employers also contribute. Self-employed individuals, including sole proprietors, pay these taxes themselves. If the business earns more than $400 of net profit, they must complete and submit a Schedule SE.

Schedule SE determines the amount of self-employment tax a company must pay. This tax is calculated based on the self-employment income earned as reported on the taxpayer's Schedule C. A portion of this tax may appear as a deduction on the taxpayer's Individual Income Tax (1040) form.

Joint Taxes

In order to file taxes jointly, the taxpayers must be married. Taxpayers in civil unions are not eligible for filing taxes jointly. Individuals married on the last day of the tax year are considered married for tax purposes.

Filing Schedule C and Schedule SE does not impact a married taxpayer's ability to file taxes jointly. Each form clearly identifies the taxpayer filing the document and the tax liability incurred by that individual. Filing jointly typically increases the couple's total income over what it would be for an individual, but the overall amount paid is less than the individuals would pay separately. This is because a greater percentage of your income is taxed at a lower rate when spouses file taxes jointly. Further, filing taxes separately eliminates some deductions and tax credits joint filers are eligible to receive.

As a business, a sole proprietorship does not pay taxes on the income it generates. Instead, profits and losses pass through to the owner, and the owner pays taxes on that income with their individual tax return. The IRS requires individuals with this kind of business to file a Schedule C with any income tax return. This typically results in the necessity for a Schedule SE as well, to calculate any self-employment tax due.

However, this does not impact the ability of the individual to file taxes jointly with a spouse. In fact, some portion of the self-employment tax paid is deductible on Form 1040. Filing taxes jointly often increases a couple's total taxable income, but it typically results in the couple paying less in taxes in total than they would if each filed taxes separately.

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