Well, if you have to invest a minimum of $6000 in inventory, that's startup costs, unless their gross sales are more than the inventory so they can show a profit. Presumably the money would work out ok if wife reported all the gross income, half the inventory costs, and 1099-d out half the gross, and then friend reports the 1099 as their gross and half the inventory as their expense. Or wife reports all the inventory as expenses and then 1099s half the net profit as a subcontractor expense. I'd still rather see it treated as a partnership rather than as owner-subcontractor.
