Posted by: Robert O’Neil, CPA

In starting a business you have to consider what type of entity you want to create based on a variety of factors including: financing, tax, legal, and start-up costs. 

For these reasons business owners may want to create a joint entity where, under state law, each owner reports their separate share of the business income or loss individually. 

This sounds easy enough — each owner reporting their share of the activity on their schedule C, thus eliminating the need to file a partnership return and send K-1s to the individual partners. 

The only issue is that the IRS may disagree with this treatment, ignore how the business is treated under state law and, instead, treat the entity as a deemed partnership if it meets the IRS’s eight factor analysis.

Learn more about the eight elements that help determine if the individual entities are in reality a partnership for federal tax purposes here. 

If you have questions on this, or any other tax or business related issue, please contact the experts at Zinner & Co.