Merging work-life with your love-life. Should you list your spouse as an employee?
If you're going into business for yourself, and your spouse will help out, you don't need to hire your husband or wife as an employee or independent contractor, nor do you need to form a partnership, LLC or corporation. If you follow certain guidelines, you can continue to operate as a sole proprietorship (a one-owner business).
Filing a Joint Return
If your spouse will participate in your business, you can maintain your sole-owner status by filing a joint tax return at the end of the year. On your joint return, you simply list all of your business income on Schedule C. The IRS then treats all of your business income as belonging to both of you, and you'll have just one tax bill. While technically, the IRS expects sole proprietorships to have just one owner, it's quite common for mom-and-pop businesses to work this way.
Filing a joint return allows you and your spouse to own a business without forming a partnership -- and dealing with more complicated partnership taxes. Also, it permits your spouse to provide services for the business without being classified as an employee, freeing the business from the expense of payroll taxes. This setup not only saves you money but, if you have no other employees, it also allows you to avoid the time-consuming record-keeping that comes with being an employer.
