Qualified Joint Venture (Husband and Wife LLC)

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Qualified Joint Venture
(Husband and Wife LLC)

Disclaimer: There are legal and tax considerations that will be unique to your situation and your state of residency. This article is simply an educational overview and is not legal, financial, or tax advice. We recommend speaking with your accountant and lawyer before making any final decisions.

As another “disclaimer”, this article is specifically about a husband and wife LLC making the Qualified Joint Venture election as per the the IRS’ Revenue Procedure 2002-69. Other husband and wife businesses may also qualify for the Qualified Joint Venture election, however, we won’t be discussing that here.

A Qualified Joint Venture (LLC) is an election made with the IRS for husband and wife LLCs allowing them not to be taxed as a Partnership (and therefore being taxed as a disregarded entity).

By default, multi-member LLCs are taxed as a Partnership with the IRS, however, the IRS allows for husband and wife LLCs (which meet the requirements below) to be treated as “one unit”.

This allows the husband and wife to file one tax return instead of two, reduce accounting fees, reduce paperwork, and save time regarding record keeping.

Married Couple Single-Member LLC

Another way to imply the term Qualified Joint Venture is by using the term “married couple single-member LLC” or “husband and wife single-member LLC”.

But the term “single-member LLC” makes it sound like there is only one person, correct?

That is the case, except for husband and wife-owned LLCs in community property states. In community property states the husband and wife are treated as one “unit” for federal tax purposes.

In the husband and wife’s LLC Operating Agreement (the document which lists who owns the LLC, among other things), instead of listing the membership interests as “John Doe, 50%” and “Mary Doe, 50%”, it’ll be listed as “John and Mary Doe 100%”.

Requirements of a Qualified Joint Venture LLC

• If a married couple forms an LLC in a non-community property state (known as a “common law property state”), they do not qualify for the Qualified Joint Venture election.

• If a married couple forms an LLC in a community property state, they do qualify for the Qualified Joint Venture election, as long as they also meet the following additional requirements, as per Revenue Procedure 2002-69:

  1. The business entity is wholly owned by a husband and wife as community property under the laws of a state, a foreign country, or a possession of the United States;
  2. No person other than one or both spouses would be considered an owner for federal tax purposes; and
  3. The business entity is not treated as a corporation under § 301.7701-2.

Community Property States:

  • Arizona
  • California
  • Idaho
  • Louisiana
  • Nevada
  • New Mexico
  • Texas
  • Washington
  • Wisconsin

Community Property States

Advantages of Husband and Wife Qualified Joint Venture LLC?

The advantages of a Qualified Joint Venture LLC are:

1. Save time: The married couple eliminates the extra paperwork and recordkeeping requirements of a Partnership.

2. Save money: The married couple saves money on accounting and tax preparation. Instead of the need to file a Partnership 1065 return, K-1s, and then a separate 1040 for each spouse, the married couple’s accountant will just file a Schedule C along with Form 1040 for just one spouse.

3. Social security and Medicare: The married couple can get additional credit for paying Social Security and Medicare taxes (without actually having to pay more in taxes).

How Can a Married Couple Form a Single-Member LLC?

Steps to forming a husband and wife single-member LLC:

1. Select your desired LLC name.

2. Designate your LLC’s Registered Agent.

3. File your LLC filing forms with the Secretary of State’s office. This document is usually called the Articles of Organization, but in a few states it may be called Certificate of Organization or Certificate of Formation.

If your state’s Articles of Organization asks for the LLC members, do not list “John Doe” and “Mary Doe” on two lines. Instead, list “John and Mary Doe” on one line.

Tip: If your state rejects your LLC filing forms with “John and Mary Doe” on one line, just re-file with “John Doe” and “Mary Doe” on two lines. You can later designate the single ownership unit in your LLC’s Operating Agreement and when obtaining your EIN from the IRS.

4. Draft your LLC’s Operating Agreement. List the LLC member as “John and Mary Doe” and later when the Operating Agreement asks for the capital contributions, list that financial amount alongside the ownership percentage as “John and Mary Doe, 100%”.

5. Obtain your Federal Tax ID Number (also called EIN) from the IRS. Use the IRS EIN online application. After you select your state, the IRS will ask if you are a husband and wife company. Select yes. Then on the next page, the IRS will ask if you’d like to be taxed as a multi-member LLC (Partnership taxation) or a single-member LLC (Qualified Joint Venture taxation). You’ll select single-member LLC.

Note: After your EIN is issued by the IRS, they will provide you with an EIN Confirmation Letter. At the top of the letter you will only see one of the spouses’ names and the abbreviation “SOLE MBR”. Don’t be alarmed though, your Qualified Joint Venture election has been noted by the IRS. Further, you aren’t technically “making the election” by obtaining your EIN. As stated in Revenue Procedure 2002-69 (section 4), however you choose to file your taxes (whether as a Partnership or a Qualified Joint Venture), the IRS will accept.

How to Change Husband Wife Partnership LLC to a Qualified Joint Venture?

Do you have an existing husband and wife LLC taxed as a Partnership and want to change it to a Qualified Joint Venture?

Here are the steps:

1. Make sure the LLC is formed in a community property state and you meet the requirements listed above.

2. Download this Qualified Joint Venture notification letter.

3. Mail your letter to the IRS.

Depending on the state where your LLC is located, you’ll mail your letter to either Kansas City, Missouri or Ogden, Utah:

Department of the Treasury
Internal Revenue Service
Kansas City, MO 64999

OR

Department of the Treasury
Internal Revenue Service
Ogden, UT 84201

Note: There is no street address needed.

To determine which address you should use, please reference this page:
https://www.irs.gov/filing/where-to-file-your-taxes-for-form-8832

4. Wait 30-45 days for an IRS Confirmation Letter. The letter confirms that the IRS will now recognize your husband and wife LLC as a Qualified Joint Venture.

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Matt Horwitz
Founder & Educator at LLC University
Forming an LLC shouldn't be so complicated. Our step-by-step guide will make the process a breeze – and no complex legal jargon! We teach people how to form an LLC for free in all 50 states. We hope you find our free guides and resources helpful in your entrepreneurial journey.

20 Comments

  1. Fayne January 20, 2018

    This is the first time in 12 years that I have been able to find any clear explanation of how to deal with a qualified joint venture LLC. Thank you.

    reply
    • Matt Horwitz January 22, 2018

      Hi Fayne, thank you for the nice comment! I’m glad to hear the explanation was easy to read and understand :)

      reply
  2. Judy Brucker January 26, 2018

    Amazing helpful, I have been searching and reading from the Secretary of State and the IRS. You teach in easy to understand language.

    One other thing I need to know is how to write and Article of Consolidation for Iowa. I can’t find a for, only a filed one from a company that has done it. Help, it is lengthy and very confusing. We need to have an official meeting of the board of the S corp to have everything on record. We are consolidating our S Corp to an LLC. Iowa requires that we file a Certificate of Organization. Then I understand the IRS will accept a late return and effective date of the LLC for 2017 if the returns have not been filed yet.

    This is long but I do hope you can give me some guidance.

    reply
    • Matt Horwitz January 27, 2018

      Hi Judy, thanks for the kind words and I’m happy to hear things are easy to understand! I apologize, but this is above my current understanding as we don’t work with converting S-Corporations to LLCs yet. I’d advise giving our “knights of the roundtable” strategy a try (details here) and calling a few lawyers. I hope you can get to the bottom of things!

      reply
  3. Matt B April 8, 2018

    Appreciate the CLEAR explanation. Being in AZ we will divide the income and expenses on separate schedule c forms! This is nice because we can’t claim the additional child tax deductions like daycare etc. if one spouse doesn’t have income listed on the 1040. Not to mention the soc sec. being applied to both spouses instead of just one. The only “election” required is just to make to schedule c forms I think?

    reply
    • Matt Horwitz April 8, 2018

      Hey Matt, thanks for the nice comment. Speaking of comments, we can’t comment on how a return is structured. We definitely recommend speaking with an accountant before making this election and afterward. Thanks for your understanding :)

      reply
  4. Alla May 21, 2018

    Hi,

    If I understand correct we with my husband can’t form “Husband and Wife Qualified Joint Venture LLC” if we live in Illinois. Before now we filled one tax declaration. When we will register LLC as Partnership, we have to fill taxes separatelly. Is it correct?

    Thanks in sdvance for answer.

    Alla

    reply
    • Matt Horwitz May 22, 2018

      Sort of. It’s more semantics. You will still be filing taxes on your personal married joint tax return, however, rather than two Schedule Cs, it’ll be a 1065 Partnership return and K-1s will need to be issued. Also, you don’t have to “register” your LLC as a Partnership. The IRS automatically treats an LLC with 2 or more Members as a Partnership for federal tax purposes. Hope that helps :)

      reply
  5. Shawn May 28, 2018

    You state that “The married couple can get additional credit for paying Social Security and Medicare taxes (without actually having to pay more in taxes).” What do you mean by this?

    reply
    • Matt Horwitz June 17, 2018

      Hi Shawn, we don’t cover that level of granularity regarding taxes. You’ll need to speak with an accountant. Thank you for your understanding.

      reply
  6. Jeff Gill June 28, 2018

    Hey Matt! Great site. Thanks for all the help. Are there any disadvantages or reasons that you can think of that a married couple in a community-property state might choose to organize their LLC as a standard partnership LLC rather than a Qualified Joint Venture?

    reply
    • Matt Horwitz July 31, 2018

      Hey Jeff, there may be some slight pros and cons, but I’m not sure on this as it would really dig deeper in taxes. I recommend running that questions by a few accountants and seeing what they think. If you’d like, feel free to share any findings :) Thank you for your understanding.

      reply
  7. Polly Bodell August 27, 2018

    We live in the State of Washington, and our LLC is registered in Washington – is the Qualifying Joint Venture notification letter for our LLC mailed to Cincinnati, OH, or should we mail it to Ogden, UT?

    reply
    • Matt Horwitz October 10, 2018

      Hi Polly, while both addresses will work, you should send to Odgen, UT for the fastest response. We’ve updated this page to make the mailing address section more clear. Thank you.

      reply
  8. Polly Bodell August 27, 2018

    By the way – thank you for all the great advice and free letter templates. You provide a wonderful service! I will certainly send in a donation!

    reply
    • Matt Horwitz October 10, 2018

      Thank you so much Polly! And you’re very welcome!

      reply
  9. Jin September 7, 2018

    Matt, thank you so much for this resource and all the other articles that has made forming a new LLC and opening our new business a little easier.

    reply
    • Matt Horwitz October 16, 2018

      You’re very welcome Jin! Thank you for the nice comment.

      reply
  10. Lerina October 15, 2018

    Hi Matt.
    Thank you so much for your easy to understand information.

    I do have a question for you though. I saw where if a husband and wife are going to be the only ones and file as single that on the member area we are to put both our names on one line….ex. John and Mary Doe…instead of filling out two separate names and addresses. Do we still put Partnership at the bottom of page 2 or do we put single member there. We live in Texas. I was unsure of that area on the form.

    reply
    • Matt Horwitz November 22, 2018

      Hi Lerina, I believe you are referring to the bottom of page 2 of the LLC’s Operating Agreement. If you elect Qualified Joint Venture taxation for your Texas LLC, you wouldn’t enter “Partnership” there. You can enter “Sole Proprietorship”, “Sole Proprietorship/Qualified Joint Venture”, or “Sole Proprietorship/QJV”. Hope that helps!

      reply

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