Which is the correct structure for the accounts of marital business partners?
1) as partnership accounts with individual partners' capital and current accounts, or
2) as sole trader accounts with one capital and one current account?
I presume 1) is correct until the partnership is dissolved and final accounts taken to determine each partner's entitlement.
If one partner wishes you to follow 1) but the other 2), whose instruction should be followed?
Replies (4)
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There are no rules.
Up to the partners to agree.
Sadly, they don't.
But, in the absence of agreement, I wouldn't be amalgamating their capital accounts.
The taxman's not really interested as you just report the totals on the return, whether partners are married or not. In fact, they don't have to report any capital account details.
Agreed. They'll both be interested when they divorce and then wonder why the accountant doesn't have the answers at their fingertips.
I am in the separate camp, probably habit and does cause some interesting discussions at client meetings.
I find it hard to consider a couple as an entity for tax /legal purposes since we stopped assessing a wife's income on her husband (unless electing otherwise re her "earned" income), so tax paid gets split re who it relates to and other , less identifiable, drawings are dealt with at a meeting to decide whose they are. (50;50 tends to be the norm in a 50;50 profit sharing partnership)
It's up to the partners and if they don't agree you'll need to find a way to get them to agree.
Generally, for most of ours, we keep a joint capital account, similar to your option 2, though of course the partnership return still splits the profits.