Sure, it´s legal to go into business with your spouse! If, after my first post about the personal aspects of going into business with your spouse, you´re ready to move forward, the next thing you should think about before diving in together is the role your spouse will play in the business. Defining this carefully is important, because the Internal Revenue Service (IRS) cares about it, and it will dictate your organization structure.
If your spouse will be an owner, you must choose to be a partnership or a corporation. If your spouse will help you in the business but will not have principal status, then you may — and I use this cautiously — qualify as a sole proprietor.
According to NFIB,
"The spouse who works a set number of hours a week, participates in important decisions and gets paid may be looked at one of three ways to the IRS. The IRS may consider the spouse a business owner, an employee or an independent contractor.
If your spouse considers herself or himself an owner, then it’s important to structure your business as a partnership, LLC or corporation. If you don’t take one of these three routes, then you must treat your spouse as an employee or independent contractor."
The NFIB article goes on to point out that although there are numerous advantages to operating your business as a sole proprietor, if the IRS deems that your spouse is more than an employee or independent contractor, your spouse could be subject to self-employment taxes.
This is yet another reason to resolve at the very outset what your and your spouse´s roles and responsibilities in the business will be. And it is definitely a topic to discuss with both your accountant and your attorney.
Employees — Other Employment Scenarios Husband AndWife Business (IRS publication)