@Anonymous wrote:
NOTE:
Business owned and operated by spouses. Generally, if you and your spouse jointly own and operate an unincorporated business and share in the profits and losses, you are partners in a partnership and you must file Form 1065.
It's not unincorporated, it's an LLC. And, if the business were an unincorporated partnership where the only partners are spouses, they can file 2 schedule Cs as disregarded entities, even if they are not in a community property state. This is known as a "qualified joint venture."
https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorporated-businesses
I don't see any barriers to issuing her a 1099-NEC to compensate her for her efforts. It will increase her taxable income and decrease yours (a wash) and it will increase her social security disability and retirement credits and decrease yours. The situations that would require you to treat her as an employee should not occur in a health marriage.
If your wife will continue to contribute significantly to the business, you might look into adding her as a member. However, a multi-member LLC must file a 1065 business return, unless you live in a community property state. So you may want professional tax and accounting advice. (The easiest thing from a tax point of view would be to dissolve the LLC and file as an unincorporated partnership. As long as the only two partners are spouses, you can file 2 schedule Cs as disregarded entities. But I expect there are other reasons to keep the LLC structure.)
