Spouse Employee, LLC

[geekgirldany]

I have a client that is wanting to make his spouse an employee. The company is an one member LLC that files Schedule C. He is not only wanting to add her to payroll but also is wanting to possibly add her as a member of the LLC to avoid workers compensation issues.

Now my question is if she is added as a member will this not change the status of the LLC into a possible partnership?

I am thinking that office staff is excempt from workers comp coverage anyways.

Would appreciate any input on the above.

Thank you
DAny

[Koss]

Husband and Wife LLC

You are correct that if he makes her a member of the LLC, it will transform the LLC from a single-member LLC to a multi-member LLC. That will require a new operating agreement. They should probably get a lawyer involved, before actually making any changes.

I don't know whether office staff are exempt from worker's comp.

Generally, a multi-member LLC cannot file Schedule C. A multi-member LLC can be a partnership, a C corp, or an S corp. Without an election, it defaults into a partnership.

But there's some crazy special rules that allow a husband-wife partnership to avoid having to file a 1065. I haven't done that type of return recently, but I know there is a way to literally split the income and expenses into two Schedules C--one for the husband and one for the wife.

It only works under certain conditions; it's not for everybody. So you'll want to look at it very carefully before your client plunges into this.

BMK

[geekgirldany]

Thanks so much Burton!

I'll advise the client and see how he wants to proceeds. I'll add in that they will be filing MFS because of prior IRS debts he still owes.

[Koss]

Husband/Wife Partnership

There is a brief discussion of the election to dispense with the 1065 in the instructions for Schedule C. When a husband/wife partnership makes this election, it is known as a Qualified Joint Venture, and they can report everything directly on two Schedules C, without having to file a partnership return.

But the election is only available if they file a joint return.

BMK