you probably need to speak to a tax advisor.
Why did you form an LLC in the first place? If you had an unincorporated business, and your wife materially participates, then you could treat it as a disregarded entity, and both you and your wife would file a schedule C and each report a share of the income and expenses according to the degree of participation. This will be the simplest way to record earned income for your spouse and get those employment credits into the Social Security system, to help qualify her for disability and retirement benefits. From a tax point of you, your simplest option is to dissolve the LLC, but this goes back to my question of why did you form one in the purpose? LLCs do not necessarily provide the same liability protection to sole proprietors as you might think, and this is where you might need professional advice.
having formed an LLC, you may wish to consider adding her to the LLC. However, unless you live in a community property state, this will cause you to have to file a business return form 1065 instead of including the LLC on a schedule C on your personal return.
I am not aware of what regulation says that you can’t pay your wife as a subcontractor, but other people have said this is not a good idea, so there may be something I don’t know. Paying her as an employee is also an option. The paperwork burden for a single employee is not as onerous as others make it seem, but it will probably take an hour or two a month, that might be more profitably spent doing other things. There are payroll services who will handle the paperwork for you for an additional fee of course. If you do hire your wife as an employee, you need to be aware that you will have to follow all of your state laws regarding minimum-wage, hours and break time, unemployment insurance, and any other mandatory benefits or rules that must be followed in your state.
