Employee or Owner

[GTS1101]

I have a mobile tax preparation service. I meet clients in their homes or at places like Starbucks or Panera Bread to do their taxes. My wife has been helping me a lot in my business by answering my phone calls, setting up appointments, returning my calls, preparing labels and folders for me, getting directions ready for me, running errands for me, and other minor duties. She also helps me in deciding how many hours to work a day whether to cutback or work more. She helps me also to decide what kind of advertising to do.

How would I classify her? If I can put her as an employee I can take advantage of sec 105 HRA and deduct all our medical expenses instead of just the premiums as 100% write off. We live in a community prop state so she can be co-owner without being a partnership. Half of the SE tax would go to her. It seems to be a gray area as to whether she is owner or employee. I would like to know the right way to classify her even if I don't get the benefit of the medical deduction.

Thanks!

GTS1101

[solomon]

As you describe it, I would vote for co-owner. Consider some of the things an employer would require of an employee as well as if there might be some state requirements. My recollection from some court cases is that you would need to have several items in writing - in effect, a small HR manual.

By the way, now in non-CP states a husband and wife may file two Sch C's rather than a 1065.

[Luis Mopeo]

She also helps me in deciding how many hours to work a day whether to cutback or work more. She helps me also to decide what kind of advertising to do.

How would I classify her?

Very carefully.

My wife helps me decide many of these same kinds of issues. Not that I need her approval for anything or worry about her reaction if I should do something she doesn't like...

Wait a minute, my wife's on caller I.D. I'd better pick this up...

O.K. Thanks for waiting.

I'm not trying to be too clever here, but there is a real issue in husband/wife business relationships where it's really tough to classify as either employee or business partner. I could hire my wife as an employee, and it could be a very solid employer/employee relationship from a technical standpoint, and she'd still tell me what to do. And I'd probably do it.

It sounds to me like you're doing the kind of work an owner customarily does, and she's doing the kind of work an employee customarily does. Keep the paperwork straight, and I don't see why you couldn't hire your wife as an employee.

Just don't refer to her as "the help" in social situations and you should be fine.

[ChEAr$]

We're not doing 2007 returns yet, but

As you describe it, I would vote for co-owner. Consider some of the things an employer would require of an employee as well as if there might be some state requirements. My recollection from some court cases is that you would need to have several items in writing - in effect, a small HR manual.

By the way, now in non-CP states a husband and wife may file two Sch C's rather than a 1065.

I think the procedure will be for only one schedule c still to be filed, but the
net profit can be split for two SE's.

[Davc]

I think the procedure will be for only one schedule c still to be filed, but the
net profit can be split for two SE's.

I hope so, but thus far that's not the way IRS has phrased it.

[joanmcq]

I hope so, but thus far that's not the way IRS has phrased it.

He already said they are in a community property state. Therefore if they are joint owners of the business, they file one Sch C, and two SEs. Its always been that way here in CP states. I think in the new regs for non-CP states, you can split other than 50/50, which would require more than one Sch C. I think.

[John of PA]

And the coffee

now who pays for the coffee? you or the client?