Sole Proprietorship vs Partnership

[Kyle Burrows]

Hi BP! My wife and I are purchasing our first rental property and looking to set up a DBA. After researching some information about sole proprietorships and partnerships, we are confused about the right approach.

We live in Texas and both want to work actively and equally in the business. What is the correct the classification - Sole Proprietorship or General Partnership?

Thanks for the help!

[Matt Horwitz]

@Kyle Burrows, since Texas is a community property state (and you are both the only owners), you and your wife can elect to be taxed as a Sole Proprietorship, also known as a Qualified Joint Venture election made with the IRS. 

Now, you can choose to be an unincorporated Partnership (taxed as a QJV/Sole Proprietorship), or you could form an LLC (for liability protection), then have your LLC taxed as a QJV/Sole Proprietorship.

Either way, I'd say the following would be the primary benefits:

• Save money: You'll save money on accounting and tax preparation. Instead of the need to file a Partnership 1065 return, K-1s, and then a separate 1040 for each spouse, your accountant will just file a Schedule C along with Form 1040 for just one spouse.

• Social security and Medicare: You can get additional credit for paying Social Security and Medicare taxes (without actually having to pay more in taxes).