1099 for Spouse

[saudahmirza]

I am contractor  and receive a 1099 under my SSN. My spouse helps out in a meaningful way doing paper work. However, she is not issued a 1099 as her work is to support the work I do in terms of paperwork and billing. We file jointly and she has no income. Can I issue her a 1099 for the work she does? I am thinking of two benefits below. 

1. This allows her to out some money away for retirement. 

2. She can have income for social security

[Anonymous_]

If your spouse is a co-owner and materially participates in the business, you can elect qualified joint venture status simply by each of you filing your own Schedule C in conjunction with a jointly filed 1040.

See https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorpo...

[Carl]

If what you have is a single member LLC or sole proprietorship, just make your spouse a W-2 employee. Otherwise, if you make her an owner then you no longer have a sole proprietorship or single member LLC. You have a multi-member LLC or Partnership which must file it's own physically separate 1065 tax return with the IRS. Just make her a W-2 employee and save yourself a "LOT" of hassle and paperwork.

[Anonymous_]

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@Carl wrote:

...if you make her an owner then you no longer have a sole proprietorship or single member LLC. You have a multi-member LLC or Partnership which must file it's own physically separate 1065 tax return...

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That does not have to be the case, however. A "qualified joint venture," whose only members are a married couple filing a joint return, can elect not to be treated as a partnership for federal tax purposes.

[saudahmirza]

Would this still allow for each spouse to have a solo 401K?

[WillK]

The short answer is yes, if you and your spouse both have self-employment income, each of you wold qualify for your own separate Solo 401(k). For more information on qualifications and contribution limits, see https://www.irs.gov/retirement-plans/one-participant-401k-plans. 

As far as the follow-up questions regarding the different ways for your wife to show-self employment income without having to file a separate business tax return, (i.e., Form 1065), you could issue her a 1099-MISC for the value of the services she provides. You would both then file separate Schedule Cs reporting your income and expenses. Depending on whether or not your contractor work is performed under an incorporated business (i.e., an LLC) and whether or not you live in a community property state, you may be able to elect Qualified Joint Venture status. You would then both file separate Schedule Cs for your respective share of the business income and expenses without the need for filing a 1099. 

For more information about Qualified Joint Ventures, including who can make that election and how to make that election, please see https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorpo... and Revenue Procedure 2002-69. 

[Anonymous]

i would strongly suggest that you discuss your situation with a tax pro in your state.  you are saying that in your business you spouse does not materially participate. see below.     The IRS would deem her an employee. not a partner or independent contractor.   as an employee, your business would have to file payroll tax returns and pay in fica, medicare and withholding taxes for her.  failure to do so time can result in substantial penalties.   

even in a qualified joint venture both spouses must materially participate.  

per the IRS

One spouse employed by another
If your spouse is your employee, not your partner, you must pay Social Security and Medicare taxes for him or her. The wages for the services of an individual who works for his or her spouse in a trade or business are subject to income tax withholding and Social Security and Medicare taxes, but not to FUTA tax. For more information, refer to Publication 15, Circular E, Employer Tax Guide

Understanding Material Participation Tests
Material participation in an income-producing activity is, generally speaking, an activity that is regular, continuous, and substantial. Income-producing actions, in which the taxpayer materially participates is an active income or loss.

Types of Material Participation Tests
For any tax year, a taxpayer, or their spouse, qualifies as materially participating in a venture if they satisfy any one of the seven material participation tests.

Test one: Participation for more than 500 hours.
Test two: Activity that constituted all participation substantially.
Test three: Involvement for more than 100 hours and no less than the participation of any other individual.
Test four: Which is a significant participation activity, combined with all significant participation activities, for more than 500 hours. A significant participation activity is a business in which the taxpayer participates, without qualifying for any of the other six tests, for more than 100 hours.
Test five: Participation during any five of the preceding ten taxable years.
Test six: Which is a personal service activity for any three prior taxable years. Personal service activities are activities in which capital is not a material income-producing factor, such as health, law, engineering, architecture, accounting, actuarial science, performing arts, or consulting.
Test seven: Partaking for more than 100 hours and based on all the facts and circumstances, on a regular, continuous, and substantial basis.