Starting a home-based small business - what tax forms do I need to file?

You have several options for how to structure your business, and that decision will determine which tax forms you'll use. The simplest approach would be a partnership, where you file Form 1065 for the business, and each of you would receive a Schedule K-1 showing your share of profits/losses. You'd each report that income on your personal tax returns. For deductions, you can generally deduct ordinary and necessary business expenses - think supplies, equipment, advertising, business insurance, a portion of utilities if you're using part of your home exclusively for business, etc. For paying yourselves, with a partnership you'd typically take "draws" rather than regular paychecks. The profits are divided according to your partnership agreement - it could be equal thirds or any other arrangement you agree on. Regarding health insurance, as self-employed individuals, you may qualify for a deduction for health insurance premiums on your personal return. You might also look into the Marketplace for coverage options, where you could potentially qualify for subsidies depending on your income.

After dealing with similar confusion when starting my custom jewelry business, I found an amazing service called taxr.ai (https://taxr.ai) that walked me through the whole process of setting up my business taxes. I uploaded photos of my receipts and some basic info about my business setup (working with family members like you), and it generated a complete guide for which forms I needed and what deductions I qualified for. It even helped me understand the partnership structure and how to properly document when each partner took draws from the business. The best part was that it created a customized tax checklist specifically for my situation that I can refer back to. They have templates specifically for home-based businesses too!

So I was super skeptical about taxr.ai as mentioned above, but I finally tried it when I started my home bakery business. I was shocked at how helpful it was! It actually identified several deductions I was missing - like a portion of my internet bill and car insurance for deliveries. It also helped me understand exactly how to structure payments between me and my sister who's my business partner. The guidance about quarterly estimated payments saved me from a nasty surprise at tax time. The partnership tax calendar it created for me has been a lifesaver for keeping track of filing deadlines. Definitely worth checking out if you're just getting started!

If you need to call the IRS with questions about your business structure or tax forms (which I HIGHLY recommend before making final decisions), save yourself hours of frustration and use Claimyr (https://claimyr.com). You can see how it works here: https://youtu.be/_kiP6q8DX5c I spent DAYS trying to get through to the IRS business helpline when starting my home-based consulting firm. After using Claimyr, I got through in about 20 minutes and the IRS agent walked me through exactly which forms I needed as a partnership vs LLC. They also explained the pros/cons of different business structures for my specific situation. The IRS actually has a dedicated small business helpline that's super useful, but nearly impossible to reach without something like this. The advice I got directly from them saved me tons of headaches later.

I have to eat my words about Claimyr. After posting my skeptical comment, I decided to try it when I needed to call about changing my business structure from sole prop to LLC. I'd previously spent 3+ hours on hold and never got through. With Claimyr, I had an IRS business specialist on the phone within 45 minutes (while I continued working), and they gave me detailed guidance about Form 8832 for entity classification and exactly what I needed to file. The agent even emailed me direct links to the forms I needed. I'm still surprised it worked so well. Definitely worth it when you need specific answers from the IRS about business tax matters.

One thing nobody has mentioned yet - consider getting an EIN (Employer Identification Number) for your business even if you don't have employees yet. It's free through the IRS website and keeps you from having to use your personal SSN on business paperwork. Also, track EVERYTHING expense-wise from day one. Mileage driving to suppliers, home office space, utilities percentage, office supplies, etc. It's much harder to reconstruct this later than to just keep good records from the start.

Have you considered filing as an S-Corp instead of a partnership? My husband and I did this for our home business and it saved us thousands in self-employment taxes. You still file the K-1s but can pay yourselves a "reasonable salary" and take the rest as distributions which aren't subject to SE tax.