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Should my husband be paid as an employee?
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Adam&Jessica
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All monies earned by the sole proprietor and all expenses are listed on his schedule C. Any money you take out of the business is a draw. You cannot deduct the expenses for yourself. You may want to form a corporation or a limited liability company if applicable based upon your profession (Some States do not allow you to become an LLC for various occupations). By forming a corporation you protect your personal assets. You can form a one person corporation and be an employee. As an employee you pay yourself a fair salary which is subject to social security and other payroll taxes. Other profits that are distributed are dividends. Dividends are not subject to social security and payroll taxes. In a sole proprietorship those profits are subject to the self-employment tax .
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