Joint Venture Reporting

[Sunshine]

Should the Joint Venture be reported on a Partnership Return with the K-1 going to each venturer? 

If not, where on the 1040, which Schedule, should the income be reported?  My client received a Form 1099-Misc, with income and loan payments combined in the "Non-employee Compensation" box.  Help!

[Susan]

Joint venture is an election for the federal for a married filing joint 1040. How the couple reports (1040 or 1065) will be determined by if this is a separate property or community property state and if this is a husband/wife sole proprietor or an LLC. They may have to file a 1065. In which case, the K-1's produced will be entered like any other income document.

If they are able to take the joint venture election, they will file either 2 schedule C or E, with all expenses split equally between the two.

For the issue of the 1099 with the incorrect amounts reported, if they can ask the issuer to correct it, that would be best. If not, there are a couple of ways to handle that.

[sjrcpa]

 Any 2 people or companies can form a joint venture. It is not unique to a married couple.

Is the 1099-MISC issued to your client or is it in the name of the joint venture?

[Susan]

From the IRS website:

Definition of a Qualified Joint Venture

A qualified joint venture is a joint venture that conducts a trade or business where (1) the only members of the joint venture are a married couple who file a joint return, (2) both spouses materially participate in the trade or business, and (3) both spouses elect not to be treated as a partnership. A qualified joint venture, for purposes of this provision, includes only businesses that are owned and operated by spouses as co-owners, and not in the name of a state law entity (including a limited partnership or limited liability company) (See below). Note also that mere joint ownership of property that is not a trade or business does not qualify for the election. The spouses must share the items of income, gain, loss, deduction, and credit in accordance with each spouse's interest in the business. The meaning of “material participation” is the same as under the passive activity loss rules in section 469(h) and the corresponding regulations (see Publication 925, Passive Activity and At-Risk Rules). Note that, except as provided in section 469(c)(7), rental real estate income or loss generally is passive under section 469, even if the material participation rules are satisfied, and filing as a qualified joint venture will not alter the character of passive income or loss.

The link to the page this is from, which you will find very useful for your question, is: https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorpo...

[Sunshine]

Made out to Client. I asked Client to have 1099 corrected, which had loan payments plus under $600. of labor. Form 1099 should be zero. Thank you for your help.

[Susan]

That is best! Be careful though, his 1099 would not be 0 if his amount is under $600 yet above zero. Whatever is left can be a write in as other income under adjustments to income. Good luck!

[Sunshine]

You don't have to file if compensation is under $600. I found out it was really my client's 25% of income of joint venture. I need a Sch. C for the Venture to record the income. The 1099 must be zero (corrected). Thank you for the help.

[sjrcpa]

That's "qualified" joint venture.and covers married persons and whether they file a 1065 or not. It is not applicable to other joint ventures. See Rev. Proc. 2002-69 and  IRC §761(f).

[Sunshine]

Where is the income for this type venture reported? Sch. E? Thank you.

[abctax55]

Yes, if it is a rental.

[Sunshine]

The venture is a loan for equipment to be repaid to my client in 4 yrs. Should this venture be a partnership with treatment for taxes, but not really a partnership? It is called a Joint Venture, a special partnership. My client receives a 25% ownership in business, no liability for expenses. Does anyone know where to put the income (25% of profits)? Should this be a 1065 or a Sch. C or just Line 21 on 1040?

[Sunshine · Accepted solution]

Thank you everyone for the help in talking this over and suggestions of things to read. I've finally come up with the answer. The Joint Venture, a Special Partnersip, is to be reported on a Form 1065 for partnership treatment, but only used as a flow-thru vehicle. My client should've received a Form K-1 to pass his 25% income of profits. The other venturer should've received on his K-1 the interest expense he paid for the loan. I realized I had another client for 35 yrs. that a Form 1065 was used for a "flow-thru" vehicle for gathering information for a family with "undivided interests". I have the answer I was looking for, finally. Thanks, again.