Should I Co-Own An LLC with My Spouse?
A Limited Liability Company (LLC) is a business structure and owners of an LLC are called members. Most states do not restrict ownership, so members may include individuals, corporations, other LLCs and foreign entities. Now with LLCs, there is no cap or maximum members to be a part of an LLC. Most states do permit “single-member” LLCs, meaning that it only has one member.
BUT IN SOME STATES YOU CAN HAVE TWO PEOPLE IN A LLC AND IT WILL BE CONSIDERED A SINGLE MEMBER LLC IF YOU ARE MARRIED!
Joint Ownership of LLC by Spouse in Community Property
When you have one individual in a LLC that is considered a single member LLC (SMLLC).
Normally when you have more than one person as part of your LLC that means you have a multi-member LLC.
However, that rule does not always apply when you are a married. How your LLC can considered for taxation purposes is determined by where your LLC is formed, and whether the state is a in community property states or non community property state.
Joint Ownership of LLC by a Spouse in a Non-Community Property States
If an LLC is owned by a husband and wife in a non-community property state the LLC should file as a partnership. However, in community property states you can have your multi-member (husband and wife owners) and that LLC can get treated as a SMLLC for tax purposes.
Now a qualified entity that is owned by a husband and wife in a community property state can be treated as a:
1. Disregarded entity for tax purposes and the IRS will accept the position that the entity is a disregarded for federal tax purposes.
OR
2.Partnership for federal tax purposes, the IRS will accept this position that the entity is partnership for federal tax purposes.
How to be considered a qualified entity:
The business must be owned by a husband and wife as community property under the laws of a state, foreign country or possession of the United States.
Nobody other than both spouses would be considered owners for federal tax purposes and,
The business is not treated as a corporation under federal law.
What States are Considered Community Property States:
If you are married and live in one of the nine current community: Louisiana, Arizona, California, Texas, Washington, Idaho, Nevada, New Mexico and Wisconsin. Within these states the law states that all property acquired by a married individual is owned in common with the individual's spouse. These very same laws can be extended to profits from an LLC that is owned solely by two people married to each other.
The Benefit:
If you are able to declare you multi member LLC as a Single Member LLC because you are a married couple that fulfills the above mentioned criteria then you can choose to have your LLC be a disregarded entity. This means that your business does not have to report or pay taxes independently from your personal taxes.
As an SMLLC owner you can report the business' profits and losses on Schedule C of IRS Form 1040.
Get to FILING!
(You must of course pay social security and medicare on all taxable income from the business and other fees such as a franchise fees that LLC must pay as well.)