A husband and wife who own a qualified business can choose to classify the business as a partnership for federal tax purposes by filing partnership tax returns, OR they can choose to classify the business as a sole proprietorship by filing a Schedule C (Form 1040) listing one spouse as the sole proprietor.

In order for both husband and wife to receive credit for social security earnings, you can form a Partnership and each spouse would carry his or her share of the partnership income or loss from Schedule K-1 (Form 1065) to their joint or separate 1040 tax returns.

This means each spouse would report their share of self-employment income on a separate Schedule SE, Self-Employment Tax. In most cases, this will not increase the total tax on the return.

Self-Employment Tax (SE Tax) is a social security and Medicare tax primarily for individuals who work for themselves.

Partners (including husband and wife) may have to make estimated tax payments quarterly as a result of partnership income. If an individual partner has net earnings from self-employment of $400 or more for the year, the partner must figure self-employment tax on Schedule SE.

This would be a good time to suggest that you contact your tax professional for details. Failure to pay ENOUGH Estimated Taxes can result in stuff penalties.

Generally, the ES Tax (Self-Employment) is the smaller of 90% of the tax expected to be shown on the current year's tax return OR 100% of the total tax shown on the prior year's tax return.

Cassandra Ingraham is a Tax Accountant and Instructor for Basic Tax Classes in the San Francisco Bay Area. During the balance of the year she can be found at http://www.taxeswilltravel.com providing information on Internet Marketing for Small Business Owners. Individuals with Tax issues can get tax question answered at http://www.taxeswilltravel.com

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