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My spouse and i formed an LLC in a community property state. We file taxes as MFJ . I have $200k earned income from LLC and my spouse has $0. In an LLC operating agreement, we have a 50/50 split.

Currently, our LLC has a default type (Multi-Member LLC) but we could be qualified to choose Qualified Joint Venture as well (depending on how many hours my spouse would work for the LLC).

If we go with Qualified Joint Venture LLC, should  we file Schedule C with split income between us as 50/50 or can I put $200k in my schedule and she put 0?

The same question if we stay as Multi-Member LLC, should we split profit equally, or can I put $200k in my Form 1065 and my spouse have $0 in her?

What if we had an operating agreement with, say, a split of 10/90? 

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  • Run the numbers through a tax program in various combinations and see whether it makes any difference and, if so, what's optimum for you? I'd be a bit surprised if there was a universally valid answer for this one.
    – keshlam
    May 11 at 2:56
  • @keshlam Yes, we already did it. 20/80 split would ideal for us. But my concern is if IRS allows only 50/50 split in community property state.
    – illuminato
    May 11 at 3:09
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    @illuminato you seem to be thinking that you can decide how to split the income based on what's convenient, but that's not how contract law works. If you have a contract allocating 50% income to your spouse then 50% of the income belongs to your spouse. Community property rules have absolutely nothing to do with this.
    – littleadv
    May 11 at 3:44
  • @littleadv I have contract on LLC, and I do that contract along ($200k earned income). Spouse will try also to find contract and will do it under LLC as well.
    – illuminato
    May 11 at 6:50

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What if we had an operating agreement with, say, a split of 10/90?

But you don't. You have an agreement with a 50/50 split. Whether you file as a QJV on Schedule C or as a partnership with 1065, you should follow your OA and report the income 50/50.

You mentioned in the comments that this is earned income and you're currently the only member of the LLC bringing revenue. You should probably discuss with an attorney how to write the OA so that the revenue is allocated according to who does the work, but for tax purposes that would be irrelevant since the earned income is community property, and as such is split between you two equally, unless you have an explicit pre- or post-nuptial agreement saying otherwise.

It may be relevant if you get a divorce and continue working under the same LLC umbrella, or for purposes other than tax, so I suggest to still discuss this with an attorney. Starting with whether you even need the LLC.

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  • Well the thing is we still waiting docs from the state. So no operating agreement yet. Why can we put as 10/90 because my earned income from LLC is $200k and spouse is $0?
    – illuminato
    May 11 at 6:48
  • @illuminato if it's earned income then it doesn't matter what you put in the OA, it will be 50/50 because it is community property. You'll need to have a prenup/postnup to say anything else.
    – littleadv
    May 11 at 6:53

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