Sole proprietor vs. partnership

[lionne]

Trying to help grandson with taxes. He and his buddy have a small company making T shirts and other items he designs. This is their third year of filing taxes. They seem to have each chosen to file a Schedule C for sole proprietor, listing their expenses and income, etc. identically on their taxes. I would have thought any time there are more than one person involved in a business it would have to be the partnership route. Please advise.

[Freelancier]

If they're both owners of the company, yes, they should have formed a partnership... how old are they? It might be that they can't form a partnership because of age. And they shouldn't both list the same expense/income on the schedule C, because they're each taking a half-ownership of the income/expenses, so they definitely have some issues that need to be worked out before you file tax returns next week.

[lionne]

If they're both owners of the company, yes, they should have formed a partnership... how old are they? It might be that they can't form a partnership because of age. And they shouldn't both list the same expense/income on the schedule C, because they're each taking a half-ownership of the income/expenses, so they definitely have some issues that need to be worked out before you file tax returns next week.

They are both in their mid 20's. My grandson is 24.

[Freelancier]

And are you a CPA? If not, I'd say you might be better served by directing them to one, because they've made some decisions in the past that they might have to go back and correct somehow.

[lionne]

No I'm not a CPA, though I have done my own taxes for years. So it turns out the buddy has already filed his taxes using a Schedule C for the sole proprietor method. Can he revise them at this point by some form? And should my grandson go ahead and file as partnership?

[Kumar Palani]

Partnership should be better, (*should be partnership in this case). Partnership firms also enjoy certain benefits as such you can reduce tax payment considerably by paying a sum to your partner by making him/her a working partner. In your case there should be some issues, and I would advice you to contact a CPA for further details before tax filing.!

[tfot]

Not sure about the rules and regulations where you are but over here filling as a partnership instead of Personal trader has a few benefits but can also have more paperwork. However a partnership would make more sense in their case I think.

Tfot.

[mitchelt]

Wouldn't becoming a partnership also help reduce the risk of Personal Liability?

[bzelf]

If you are considering partnership, I would suggest that you set up LLC, which is taxed as partnership but can provide you with limited liability protection.