Q: What about Sole proprietorships owned by a married couple? My question was regarding the limit for the number of company owners or partners on Slide 11.
A: If a married couple files jointly, or one of the two files separately as the owner, the sole proprietorship remains a sole proprietorship. But a husband and wife cannot both file separately as owners of a sole proprietorship. If they did so, the IRS would consider it a partnership and require Form 1065 rather than Schedule C.
By definition, a sole proprietorship can have only a single owner. Otherwise it becomes a partnership in the eyes of the IRS.
Q: Please explain what the carry over federal income tax provision is.
A: In general, a Schedule C loss is used to offset other sources of income on a sole proprietor's Form 1040. It is used up, in effect, in the year in which it occurs. However, if the loss is such that the sole proprietor suffers a personal net operating loss when all other income sources are considered, the loss can be carried forward and applied to a given percentage of future personal taxable income.
The comment on Slide 47 – “no carry over federal income tax provision applied to the sole proprietorship as a business organization” –- and not to the sole proprietor and his or her federal income tax obligations in reporting Schedule C income or loss.
Q: Where do we find the withdrawals for a Sole Proprietorship?
A: Withdrawals are not captured on Schedule C. There are two ways to identify withdrawals – examine the accrual balance sheet for the sole proprietorship or ask the sole proprietor directly for the information.
Course overview: Business Income Tax Returns