Sole owner of LLC hiring/contracting work to spouse - tax implications (finance, profit)

[StoneOne]

I am the sole owner of an LLC, and my wife recently began doing occasional work for the business. We are trying to decide if it would be a good idea to pay her as a contractor or as a salaried employee. The work is not really regular, and I don't anticipate it being so for some time.

So, since we file our taxes as married-joint filing, do I need to file a 1099 form with the IRS for my wife's payments?

Does she need to make separate self-employment tax payments?

[coldwine]

Contract work is very difficult to prove. You should consult a professional if you're interested in ensuring that her work at your LLC is properly handled to qualify for contractor status.

Just a little warning. The government despises contractors, and there's a list of about 19 requirements to meet. Violating any one of them means she's not a contractor. Good luck

[Clay Lady]

I highly recommend you discuss this with your accountant so you can have these issues looked at in a more detailed manner.

[smtisland]

If you are taxed as a Sole Prop of the LLC (if you filed a sch C last year) then you do not need to send her a 1099. The IRS views the 2 of you as one when it comes to taxes. So, the money you pay her is just like the money that you take out of the business for yourself. You are taxes on the profits that the business sees.

If you elected to be taxed as a S-corp thru your LLC, then you will not only have to look at the business but your personal finances as well.

As someone else indicated, it is very difficult to prove Contractor to the IRS in case of audit.

[ebs964]

Why not just pay her as part time employee?