ProSeries Frequently Asked Questions

Products Affected:

• ProSeries/1040
• ProSeries Basic/1040

Section 8215 (Family Business Tax Simplification) of the Small Business and Work Opportunity Tax Act of 2007 applies to married couples filing a joint return who jointly own and operate a business. They may now choose to elect out of the partnership rules if certain criteria is met. Both will be subject to their own self-employment tax.

This provision generally permits a qualified joint venture whose only members are a husband and wife filing a joint return to not be treated as a partnership for federal tax purposes. A qualified joint venture is a joint venture involving the conduct of a trade or business if:

• the only members of the joint venture are a husband and wife,
• both spouses materially participate in the trade or business, and
• both spouses elect to have the provision apply.

If this provision is elected, all items of income, gain, loss, deduction and credit are divided between the spouses in accordance with their respective ownership interests in the venture and each spouse accounts for his or her respective share on Schedule C or F, as appropriate.

This provision is not intended to change the determination under present law of whether an entity is a partnership for federal tax purposes (without regard to the election provided by the provision).

If a client's Schedule C or F has previously been filed in ProSeries selecting the "joint ownership" box and the client does not live in a community property state, for 2007 their business must be filed using either two Schedules C or F or as a partnership on Form 1065.

If the taxpayers elect to file two Schedules C or F, you will need to split the income, deductions, depreciable assets, carryovers, etc. between the two business schedules.

If the 2007 return will have two schedules when the 2006 return only had one, when transferring carryover information (including depreciable assets) from 2006 to 2007, you will need to split these amounts in one of these two ways:

Method 1 - Before Transferring 2006 Client Files to 2007

To split the 2006 business information into two separate Schedules C or F before transferring the client's return into the 2007 ProSeries program:

1. Open the client's 2006 return in the 2006 ProSeries program.
2. From the File menu, select Save As and save the return using a different name (so the originally filed return is not modified).
3. Open the new return.
4. Create a new Schedule C or F.
5. Using the appropriate ownership percentage for each spouse, split the 2006 income, deductions, depreciable assets, vehicles, credits, etc. into the resulting two Schedules C or F, one Schedule C or F for the taxpayer and the other for the spouse. Mark the appropriate ownership box on each Schedule C or F. Splitting the depreciable assets requires creating new Asset Entry Worksheets. Splitting the vehicle expenses also requires creating new Car and Truck Expenses Worksheets.
6. Save this return with the two separate Schedules C or F.
7. Transfer this new return into the 2007 ProSeries program. After transferring, the 2007 return will have two separate Schedules C or F with the appropriate ownership indicators, carryovers, depreciable assets, etc. These schedules are now ready for you to enter 2007 amounts.

Method 2 - After Transferring 2006 Client Files to 2007

To split the business information into two separate Schedules C or F after transferring the client's return into the 2007 ProSeries program:

1. Transfer the client's 2006 return into the 2007 ProSeries program.
2. Open the client's 2007 return in the 2007 ProSeries program.
3. Create a second Schedule C or F.
4. Using the appropriate ownership percentage for each spouse, split the 2007 depreciable assets, vehicles, carryovers, etc. into two Schedules C or F, one Schedule C or F for the taxpayer and the other for the spouse. Splitting the depreciable assets requires creating new Asset Entry Worksheets. Splitting the vehicle expenses also requires creating new Car and Truck Expenses Worksheets. Mark the appropriate ownership box on each Schedule C or F.
5. Save this return with the two separate Schedules C or F. These schedules are now ready for you to enter 2007 amounts.