Schedule C and MFS

[Ray in Ohio]

TP and Spouse both have W2 income. TP has small home business on the side. Spouse has nothing to do with this business, other than her name is on the checking account along with her husband. (joint account.) The Big Green People are doing the return as MFS and splitting the Schedule C income & expenses among both spouses. I have never heard of this being done, and I tried to find something in TTB about this but was unable to find anything.

Is this the proper way to hande this Sch C?

Just curious how ya'll would handle this. I know they are not happy with it, and it would not surprise me, if I get a call from them.

[Maura]

Sounds like a ploy to bill for 2 tax returns. Did you see any advantage to MFS? The IRS has said that if both spouses materially participate in the running of a "sole pro". You can split the income and expenses on separate SCH C's and avoid having to file as a partnership.

[OldJack]

>>Sounds like a ploy to bill for 2 tax returns. <<

I agree with Maura. Unless the couple are planning to divorce I can't imagine that it would do anything but cost them taxes.

[Ray in Ohio]

TP has much larger W2 income than spouse. (spouse part time). One kid to be claimed. Couple not planning on getting divorced. (I know them personally). I don't see the benefit for MFS. Possibly on OH state return, could save a few bucks, but I think federal would be much better joint.

[RoyDaleOne]

Not wanting to include a spouse in a possible IRS audit, is one reason I have seen. However, this does not seem to apply in your case, that you know about at least.

[cientax]

Here in Texas what we do is split the SE tax only. We use one Sch-C for the business income and expenses and split the SE by clicking the check box at the top for JOINT. That could be what they are trying to do is split the SE tax so that spouse gets some SS credits. I only do that for spouses that both participate in the business.

[joanmcq]

Cientax, you can do it that way because TX is a community property state. The new regs allow a H/W biz to file with two sch Cs in a non community property state, and split the biz & SE by the proportion that each participates rather than filing a 1065.. However, this case doesn't seem to fit the new regs, because the original poster stated the wife did NOT participate in the business, and to do a split Sch C, both have to materially participate. If the biz is owned & operated by only one spouse, it is one Sch C. The preparer may be filing MFS because in Ohio, it appears that MFS is often the more beneficial filing status. (Ohio preparers complain here all the time).

[Ray in Ohio]

ok, so if you split a Sch C, how do you handle depreciation?

[Pacun]

follow what HRB did.

[Cat in OH]

Regarding the reason to file MFS, even with my small practice, I've had a disproportionate number of couples who came out ahead overall by filing separate because of the difference in the state income tax. It seems to be especially true when the joint AGI is 100,000 or less. The trick is getting the separate AGI's as near to equal as possible, then they really 'make out' on the state return.