Yes, so long as you are not in a community property state. Each of you will include a SCH C on your joint return for each one's ownership percentage of the business. The fact that one works for the embassy and their earned income is reported on a W-2 (I assume), doesn't change the taxability of the self-employment income.... unless there's something you're not telling us?
What is "1094 income?" The only 1094 I'm aware of is the 1094-C which is used by employers for reporting ACA benefit information as it relates to the health care law. It's not used for reporting income to anyone or any taxable entity.
But overall, I find the 1065 just a simpler way to go, even for a married couple with joint ownership in a business.
