If you’re married and you run your own therapy practice, are you better off filing your taxes jointly or separately?

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Each individual case is different. There are many factors to take into account. 

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Here’s what you need to know so you can make the right decision for you and your practice.

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The difference between filing jointly and filing separately

Quick refresher: what do we mean when we say “filing jointly” vs. “filing separately?”

Filing separately

When you and your spouse elect to file separately, you each file your own tax return, listing your own individual incomes and deductions. However, if one spouse chooses to itemize their deductions, the other may not choose the standard deduction.

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If your practice is a separate business entity (e.g. an LLC taxed as an S corporation), you’ll file one tax return for your practice (Form 1120-S) and one for you as an individual (Form 1040) that reports your income from the business.

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If your practice is a sole proprietorship, you and your business are identical for tax purposes. You’ll report all your income and losses on Form 1040, with Schedule C attached. You’ll also attach Schedule SE (self-employment tax). 

Filing jointly

When you and your spouse elect to file jointly, you only submit one tax return to the IRS. Your income and deductions are combined on this single return.

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If your therapy practice is a separate business entity and you choose to file jointly with your spouse, you’ll submit one tax return for your therapy practice, and a single tax return for you and your spouse. Income you earn from your therapy practice is included on the individual tax return you and your spouse file.

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If your therapy practice is a sole proprietorship—meaning, for tax purposes, you and your business are the same entity—then all your therapy practice’s income is included on the tax return to file jointly with your spouse. It’s reported on Schedule C of 1040. You’ll also include Schedule SE.

Filing jointly or individually: which is better?

If your spouse is an employee of your therapy practice, or if you share ownership of the practice, the choice between filing jointly or individually becomes a bit more complex. Those situations are covered in the next two sections.

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If you own your own therapy practice and your spouse is not in any way involved in ownership or day-to-day operations, it’s a little simpler. You can jump ahead to the pros and cons of filing jointly.

Filing jointly when your spouse is an employee of your therapy practice

If you and your spouse file jointly, and you’re also planning to hire them as an employee, you may be able to make tax moves that benefit you both. Before you can, though, here are some guidelines you need to follow.

Take advantage of tax-reduction strategies

There are a number of ways you can reduce your tax burden when you hire your spouse to work at your therapy practice, such as paying them in fringe benefits (e.g. healthcare coverage). For a deep dive, check out our guide to hiring family members at your therapy practice.

Stick to solo business structures

To take advantage of spousal tax benefits, your practice must be a sole proprietorship or single-member LLC. If it’s a multi-member LLC, S corp, or any other structure where ownership is not limited solely to you as an individual, you’re out of luck.

Make sure they’re a real employee 

If the IRS audits you—particularly if they suspect you’re taking unfair advantage of tax benefits by falsely claiming your spouse as an employee—they’ll be looking for proof that your spouse works for you in real life, not just on paper. Make sure your spouse is doing real, tangible work for your therapy practice, and that there are records (emails, meeting notes) of this work being completed.

Pay them reasonable compensation

You can reduce the amount of employment tax you owe by paying your spouse partly in fringe benefits, but even if the majority of your spouse’s income doesn’t take the form of cash, you should make sure it isn’t exorbitant. The IRS is on the lookout for business owners trying to dodge taxes by hiring their spouses, so it’s important your spouse/employee earns a reasonable salary.

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Filing taxes when you and your spouse co-own a therapy practice

If you and your spouse share ownership of your therapy practice, you’re still able to file jointly. In fact, if your practice isn’t a formal business entity, filing jointly while sharing ownership could significantly reduce the amount of paperwork you have to do during tax season.

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It all depends upon your business structure. Here’s how co-ownership and joint filing play out depending on your situation.

Joint filing when your therapy practice is an LLC or S corporation 

If you and your spouse are members of your LLC or shareholders in your S corporation, you report your combined income from the business either as self-employment income or W2 income on Form 1040, which you file jointly.

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There are different ways to pay yourselves when you own portions of the same business entity; it depends on the type of entity and the role you play in the business. For an introduction, check out our guide to S corporations for therapists.

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At the same time, the business reports its revenue and expenses—including the money it pays to you, its owners (and possibly employees)—on its own tax return (Form 1120-S or Form 1065, depending on your business structure).

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Paying yourselves when you co-own a business can get tricky; there may be ways to reduce your tax burden depending on your specific situation, or extra steps you need to take at the state level if you have a registered LLC. Be sure to consult with an accountant before making any big decisions.

Joint filing when your therapy practice is an unregistered entity

If you share ownership of your therapy practice, the IRS considers it a general partnership by default. The partnership’s income is divided between you and your spouse in the form of distributions. In addition to filing your own individual tax returns, you and your spouse must also file Form 1065.

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However, you can avoid filing Form 1065 if you and your spouse file your individual tax return jointly and elect to be treated as a qualified joint venture. In that case, you file a single Form 1040 with the IRS, but each of you files your own Schedule C, reporting your respective share of the profits and losses for the business.

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Your business does not need its own EIN in order for you to use this filing method. For a few more details and a rundown of how it all works, check out the IRS info page on qualified joint ventures for married couples.

Joint filing for therapists: pros and cons

Filing jointly has its benefits and drawbacks. Assuming only your spouse does not own a share in your therapy practice or work there as an employee, here are the pros and cons:

Benefits of filing jointly as a self-employed therapist

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• It’s simpler. In many cases, working together to file a single tax return is simpler than filing separately.
• Extra tax credits. Married couples filing jointly may be able to increase the amount they can claim in the form of the Earned Income Credit (EIC), lifetime learning credit (LLC), American Opportunity Credit (AOC), and other tax credits.
• Lower income tax liability. Depending on how much you and your spouse earn, the total income tax you pay together filing jointly (with the total amount divided between the two of you) may be less than the amount you’d pay filing individually (with the total amount combined).
• Business losses can offset income. If your practice suffers losses during a particular year, those losses can be used to your advantage by reducing your spouse’s tax burden.
• More advantageous standard deduction. Your standard deduction doubles when you file jointly. That works to your benefit if one spouse works full time and the other part time or not at all.

Drawbacks to filing jointly as a self-employed therapist

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• Shared liability. When you and your spouse file jointly, you share liability for any tax debts or penalties.
• Limited deductions. Some personal tax deductions phase out for higher-income filers. If filing jointly pushes you into a higher income bracket, you could miss out on deductions you’d otherwise claim.
• Financial disclosure. If one spouse does not wish to disclose all of their financial information to the other (for instance, during a separation) then filing jointly may not be the right way to go.

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If your spouse works for your therapy practice, there are many factors besides filing jointly you should be ready to take into account. Check out our guide to hiring family members at your therapy practice.

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This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult their own attorney, business advisor, or tax advisor with respect to matters referenced in this post.

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Bryce Warnes is a West Coast writer specializing in small business finances.

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