Currently, a business which is owned and operated by both the husband and wife must file their taxes as a partnership.

Starting with this tax year, the husband and wife can elect to report incomes or losses as a sole proprietorship in proportion to his and her vested interest in the business.

The husband and wife must be the only sole owners of the business and both must materially participate.

Source: Section 8215, Family Business Tax Simplification of the Small Business and Work Opportunity Tax Act of 2007.