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The first thing that needs to happen is that they issue her her own 1099-Misc.
Are you a Qualified Joint Venture? QJV If so, follow the instructions in the IRS bulletin. This also applies to having her as your employee.
If you each have your own separate Schedule C businesses, then you will need to issue her a 1099-Misc from your business to hers to report her income.
If none of this applies and your wife is unofficially helping you out, then none of her expenses are deductible.
can you explain why they issue just one 1099? this is totally wrong unless she is working for you. in that case you would need to file quarterly payroll tax returns for her compensation and pay in the payroll taxes as required. such returns would already be late and the penalties for late filing and paying of payroll taxes are substantial. as an employee her expenses would not be deductible.
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