Building Your Business What Is a Qualified Joint Venture? Qualified Joint Ventures Explained By Sierra Kennedy Sierra Kennedy Website Sierra Kennedy is a contributing writer for The Balance covering small business terms and topics. She began freelance writing in 2010, and also launched her first LLC shortly thereafter. An online dropshipping boutique, meanwhile, marked her first foray into the e-commerce space. Sierra's writing clients have included Florida State University, Penn State, Rebel's Market, SportingNews, and Zippia. She now uses her expertise to teach others how to be successful online whether for writing, launching a new store, or overall help with getting their small business started. learn about our editorial policies Updated on April 26, 2022 Reviewed by Erika Rasure Reviewed by Erika Rasure Erika Rasure is globally-recognized as a leading consumer economics subject matter expert, researcher, and educator. She is a financial therapist and transformational coach, with a special interest in helping women learn how to invest. learn about our financial review board Fact checked by Kiran Aditham In This Article View All In This Article Definition and Example How a Qualified Joint Venture Works Types of Qualified Joint Ventures Photo: MoMo Productions / Getty Images Definition A qualified joint venture (QJV) is a federal tax election for spouses who co-own a business and meet certain criteria. Definition and Example of a Qualified Joint Venture A qualified joint venture is an IRS designation only available to married couples who are the sole proprietor of a business. This option became available beginning in the 2007 tax year and is not a state law entity like a limited liability partnership (LLP) or limited liability company (LLC). Instead, it is a tax election spouses in business together can make in order to be taxed as sole proprietors by the IRS. Acronym: QJV As a hypothetical example, let’s say that Eric and Sarah are married and own a trucking company that is not registered as a state entity. They are the only two partners in the business, file a joint tax return each year, and each own 50% of the company. These factors make the couple eligible to file as a qualified joint venture. If the couple had a net income of $200,000, they would each file $100,000 on their IRS Form Schedule C. Eric and Sarah would also file separate Schedule SE (Form 1040) to calculate their self-employment taxes based on their reported incomes. Note If your QJV has employees, you or your spouse need to obtain a sole proprietor employee identification number (EIN) to pay employment taxes due on wages paid. How a Qualified Joint Venture Works The purpose of a QJV is to simplify the tax-filing process for married couples, and this ties directly into how it works. Filing as a Partnership It helps to understand how the tax filing procedure would look if the partnership election is made. If that was the case, each spouse would have to file an information return on Form 1065 to report credits, profits, losses, and deductions. Each partner would also need to have a Form Schedule K-1 prepared to report their earnings, losses, and dividends. Note that this is on top of registration and annual reporting fees for incorporation at the state level. Filing as a Qualified Joint Venture Filing taxes as a QJV, on the other hand, is typically more straightforward. Here are some key steps in this process: The couple files their U.S. individual income tax return (Form 1040), indicating “Married filing jointly.”Each spouse then fills out a Schedule C (or Schedule F for farming) to indicate profit and loss from the business.Finally, each spouse fills out their own Schedule SE, which is also where another benefit of filing as a QJV comes in. Schedule SE is the form in which self-employment tax calculations are made, including factoring in FICA taxes (Social Security and Medicare). Due to the complexity of partnership filings, there are some couples who have only one spouse claim all the business income for a tax year. However, the streamlined process involved with a QJV makes it less complicated for each spouse to fill out their own Schedule SE and receive individual credit for contributions. Note QJVs are treated as sole proprietorships, meaning that spouses can use their Social Security numbers to file rather than an EIN. However, an EIN is required for businesses that are required to file returns dealing with excise, employment, firearms, tobacco, or alcohol. Tax Filing Example Even if the ownership is not a 50/50 split in a qualified joint venture, filing still works the same. Let’s say a partnership made $100,000 in profit for the year, with Spouse 1 owning 60% of the business while Spouse 2 has a 40% stake. Spouse 1 and Spouse 2 would report $60,000 and $40,000 on their Schedule Cs, respectively. The couple then would calculate their individual self-employment taxes on separate Schedule SEs. Finally, the totals from both of the Schedule Cs and Schedule SEs would be reported on the joint return. The bottom line for QJVs is that the numbers reported are reflective of each spouse's financial interest in the business. Types of Qualified Joint Ventures Essentially, only one type of qualified joint venture exists. However, some business owners may have questions regarding if an LLC can elect this tax status, and the answer depends on the state you live in. If your LLC was not formed in a community property state, filing taxes as a QJV is not an option. However, in these states, community property laws may allow married owners to be taxed as sole proprietors and file a Schedule C and Schedule SE. Of course, all other criteria of QJVs would also need to be met. Key Takeaways A qualified joint venture is not an incorporated business entity and is treated as a sole proprietorship by the IRS.To qualify, owners must be married, file a joint tax return, must both participate materially in the business, and agree to not be treated as a partnership.When filing, each spouse fills out a Schedule C and Schedule SE along with their joint tax return.This tax election is only available to general partnerships, with the exception being an LLC formed in a community property state. Was this page helpful? Thanks for your feedback! Tell us why! Other Submit Sources The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy. IRS. "Election for Married Couples Unincorporated Businesses." Accessed Sept. 23, 2021. Iowa State University, Center for Agricultural Law and Taxation. "The Spousal Qualified Joint Venture as a Planning Tool." Page 2. Accessed Sept. 23, 2021. IRS. "26 CFR 301.7701-3: Classification of Certain Business Entities." Accessed Sept. 23, 2021.