Sole proprietor and business related expenses by spouse

[Yojedi]

I am a sole proprietor and income is all 1099 based.  I am married and file jointly.  My wife helps out with my business here and there and occasionally she would travel to client meetings on my behalf.  Can I expense her credit card charges for travel expenses such as flights, meals and accommodation etc.?  I don't pay her a salary.

[Opus 17]

There are 3 correct ways to recognize your wife's participation in your business activities.

A. Treat her as a partner.  If you are not an LLC, this is a "qualified joint venture".  You divide the income and expenses between 2 schedule Cs based on your relative participation in the business.  She can deduct her expenses as usual.  (If you have an LLC, this gets a little more complicated.)

B. Hire her as a W-2 employee.  You can then reimburse her expenses under an accountable plan.  

C. Hire her as a subcontractor.  Your payments to her are a business expense to you and gross income to her on a schedule C.  She can deduct her ordinary and necessary expenses.

Note that, by including your spouse in your business, your spouse builds credits with the social security administration for retirement or in case of disability.

Now, as to your specific question, can you pay for a person who is not a contractor, employee or partner to undertake business activities on your behalf?  Probably.  You need to be able to make the case that these are ordinary and necessary expenses for your business.  

But note that travel, meals and lodging are subject to certain rules as described in publication 463, chapter 1.  

https://www.irs.gov/forms-pubs/about-publication-463

[Yojedi]

Much to think about but really helpful and appreciated.  

Being a sole proprietor I do not draw a salary.  If I were to hire my wife and issue her W2 but I do not draw any pay, is this acceptable?

[Opus 17]

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@Yojedi wrote:

Much to think about but really helpful and appreciated.  

Being a sole proprietor I do not draw a salary.  If I were to hire my wife and issue her W2 but I do not draw any pay, is this acceptable?

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Of course.  A sole prop (disregarded entity) never claims a salary or files a W-2 for themself.  You pay income tax and self-employment tax on your net earnings (profit) after expenses, whatever that happens to be.  You can hire as many employees as you want to run your business.

Now, once you have an employee (or employees) you need to start paying attention to both federal and state payroll laws.  You might want to hire a payroll processing firm, or consult with an accountant.  For example, you might be required to pay minimum wage (or more), or there might be an exception for relatives.  There might be other state requirements.  In New York State, a pay check must have a pay stub or statement that lists 10 or so specific items, and the penalty for non-compliance is $50 per paycheck per employee (hopefully your spouse would not blow the whistle if you forgot to include one of those little details).  But again, there might be exceptions for hiring family members.  You might be required by your state to pay wages in a certain time (weekly, monthly, etc.).  You will need to file a form 941 with the IRS each quarter to report and pay any withheld payroll taxes (social security, medicare, federal unemployment) and withheld state and federal income taxes.

It's not necessarily simple, and you may need professional advice to get started.  I did it on my own and was self-taught, but my payroll was one church pastor (I was the treasurer) and I had fairly good research skills and plenty of time to figure it out.  If you are busy or need help with the rules, professional advice will be worth it in the long run.  And your business will hopefully expand so you need more employees, why not think big?  Good luck.