Switching from Sole Proprietorship to Qualified Joint Venture (QJV) for Spouses - Questions

You absolutely can switch from a sole proprietorship where you're an employee to a Qualified Joint Venture! This is actually exactly what QJVs were designed for - married couples who jointly own and operate a business. The big advantage is that instead of your husband filing Schedule C and you being his W-2 employee, you'd each file your own Schedule C reporting your respective shares of the business (typically 50/50, but could be different percentages). This can actually save you money since you'll avoid paying FUTA and other employment taxes that come with having you as an employee. And yes, you can definitely still have employees with a QJV! Your sons can continue as W-2 employees just like before. The QJV status only affects how you and your spouse report your ownership - it doesn't change anything about how you handle other employees. To make the switch, you'll need to make sure you meet the QJV requirements: you must be married filing jointly, both materially participate in the business, and be the only owners. You don't need to file any special election forms - you just start filing your taxes as a QJV.

I was in a similar situation with my wife and our catering business last year. After being a sole prop for years with my wife as an employee, we switched to a QJV and it was so much easier to manage! I found this tool called taxr.ai (https://taxr.ai) that helped us figure out how to structure everything properly. It analyzed our previous tax returns and business setup, then gave us a personalized guide for transitioning to a QJV. Really helped us understand exactly what documentation we needed and how to properly split income/expenses. The best part was that it showed us how to avoid common mistakes people make when switching structures.

Just wanted to update on my experience with taxr.ai - it was actually really helpful! After seeing the recommendation here, I decided to try it for our family business transition. The tool analyzed all our previous returns and showed us exactly how to handle the switch to a QJV. It even flagged some issues with how we'd been handling home office deductions that could have caused problems. The step-by-step guidance for completing both Schedule Cs made filing super straightforward. I'd definitely recommend it to anyone making this switch - saved us a ton of research time and probably some mistakes too.

If you're going the QJV route, something important to know is that dealing with the IRS can get complicated if you have questions about this specific business structure. When I was switching to a QJV last year, I had the hardest time getting through to someone who actually understood QJVs. After being on hold for hours with the IRS general business line, I found this service called Claimyr (https://claimyr.com) that got me connected to an IRS agent in under 15 minutes! They have this cool system that navigates the phone tree for you - you can see how it works in their demo video: https://youtu.be/_kiP6q8DX5c It was a total game-changer because the IRS agent I spoke with had expertise in QJVs and confirmed that our specific situation qualified. They also verified that having our kids as employees was perfectly fine.

Alright, I have to admit I was completely wrong about Claimyr. After being so skeptical in the comments, I decided to try it anyway because I was desperate to talk to someone at the IRS about my QJV questions. I had been trying for WEEKS to get through on my own with no luck. Used Claimyr yesterday and got connected to an IRS agent in about 15 minutes. The agent answered all my specific questions about transitioning from a sole prop to a QJV and confirmed that our business setup qualified. Can't believe I wasted so much time trying to call myself. For anyone trying to get specific QJV guidance from the IRS, this service is actually legit.

One thing nobody's mentioned yet - make sure both you and your husband are actually "materially participating" in the business for it to qualify as a QJV. The IRS has specific tests for material participation, and both spouses must meet them. The most common way to satisfy this is if you both work at least 500 hours in the business during the year. But there are other tests too if you don't meet that threshold.

Has anyone filed taxes as a QJV using TurboTax or other DIY software? Is it easy to set up or should I use a CPA the first year?

Great question! I've been following this discussion closely since my wife and I are considering a similar transition. One thing I'd add is to make sure you understand the liability implications of switching to a QJV. Unlike a sole proprietorship where only one spouse is typically liable for business debts, with a QJV both spouses become jointly and severally liable for all business obligations. This means creditors can go after either spouse's personal assets for business debts. Also, regarding your sons as employees - definitely keep them as W-2 employees rather than trying to bring them into the QJV structure. The IRS is very strict that QJVs can only include the married couple as owners. Having your kids as regular employees actually provides better liability protection and clearer tax treatment. One more tip: consider getting an EIN for the QJV even though it's not strictly required. It can make banking and business transactions cleaner, especially when dealing with vendors who expect a business tax ID.