As the year moves closer to the end, now is a good time to start taking a look at your tax situation (if you haven’t started already). There have been quite a few advantages of the Small Business and Work Opportunity Tax Act of 2007 (2007 Small Business Act) that all small business owners may want to take a look at. Here is one that will help closely owned family businesses simplify their taxes.
Prior to the 2007 Small Business Act, if an unincorporated business that was jointly owned by a married couple filed as a sole proprietorship (as opposed to a partnership), only the filing spouse would receive credit for paying Social Security and Medicare taxes. Furthermore, unless the married couple was located in a community property state, both the married couple and the business would have been subject to penalties for failing to file as a partnership. As a result, some married couples who were in business together filed a partnership return.
Under the new law, an unincorporated business that is jointly owned by a married couple in a common-law state may file as a sole proprietorship without penalty provided the business elects not to be treated as a partnership. The new law also ensures that both spouses receive credit for paying Social Security and Medicare taxes. The provision is effective for tax years beginning after December 31, 2006.
Be sure to speak to your tax advisor regarding this and the many other changes affecting your small business.
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