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

Answer:   For a business to be classified as a sole proprietorship:

• Either the husband or the wife would be the ownerof the business.
• Either of the spouses can work in the business as an employee.

If a married couple who file a joint tax return elects to conduct their business activities as a qualified joint venture:

• The husband and wife must materially participate in the trade or business.
• The spouses must divide the items of income, gain, loss, deduction, credit and expenses in accordance with their respective interests in such venture.
• For more information see Election for Husband and Wife Unicorporated Businesses.
• This is effective for taxable years beginning after December 31, 2006.
• Also, see Rev. Proc. 2002-69 for Special Rules for Spouses in Community States.