Can a husband and wife run a business as a sole proprietor or do they need to be a partnership?

It is possible for either the husband or the wife to be the owner of the sole proprietor business. When only one spouse is the owner, the other spouse can work in the business as an employee. If the spouses intend to carry on the business together and share in the profits and losses, then they have formed a partnership. See Rev. Proc. 2002-69 for Special Rules for Spouses in Community States.

References:

• Publication 334, Tax Guide for Small Business
• Publication 541, Partnerships

For IRS purposes, how do I classify a limited liability company? Is it a sole proprietorship, partnership or a corporation?

A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC. Unlike a partnership, none of the members of an LLC are personally liable for its debts. An LLC may be classified for Federal income tax purposes as if it were a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), a partnership or a corporation. If the LLC has only one owner, it will automatically be treated as if it were a sole proprietorship (referred to as an entity to be disregarded as separate from its owner), unless an election is made to be treated as a corporation. If the LLC has two or more owners, it will automatically be considered to be a partnership unless an election is made to be treated as a corporation. If the LLC does not elect its classification, a default classification of partnership (multi-member LLC) or disregarded entity (taxed as if it were a sole proprietorship) will apply. The election referred to is made using the Form 8832 (PDF), Entity Classification Election. If a taxpayer does not file Form 8832 (PDF), a default classification will apply.

References:

• Publication 3402 (PDF) Tax Issues For Limited Liability Companies
• Publication 334, Tax Guide for Small Business
• Tax Topic 103, Small Business Tax Education Program
• Publication 542, Corporations
• Publication 541, Partnerships
• Form 8832 (PDF), Entity Classification Election

Does a small company need a tax ID number?

A sole proprietor who does not have any employees and who does not file any excise or pension plan tax returns is the only business person who does not need an employer identification number. In this instance, the sole proprietor uses his or her social security number as the taxpayer identification number.

References:

• Publication 334, Tax Guide for Small Business
• Publication 1635 (PDF), Understanding Your EIN
• Tax Information for Business.

Which form do I use to file my business income tax return?

To determine which form you should file for your business entity, select one of the following links:

. Publication 541, Partnerships

. Publication 542, Corporations

. Publication 3402 (PDF), Tax Issues for LLCs

. Publication 334, Tax Guide for Small Business

. Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation

References:

• Publication 541, Partnerships
• Publication 542, Corporations
• Publication 3402 (PDF), Tax Issues for LLCs
• Publication 334 Tax Guide for Small Business
• Entities: Sole Proprietor, Partnership, Limited Liability Company/Partnership (LLC/LLP), Corporation, Subchapter S Corporation