Your spouse can participate in your sole proprietorship -- a little.

If you are going into business for yourself and your spouse will help out occasionally, you don't necessarily need to hire your husband or wife as an employee or independent contractor, nor do you need to form a partnership, LLC, or corporation. If you follow certain guidelines, you can continue to operate as a sole proprietorship (a one-owner business).

You Can Still File a Joint Return

The IRS does not officially recognize any form of sole proprietorship that informally has more than one owner. However, you can maintain your sole-owner status even if you file a joint tax return with your spouse at the end of the year. On your joint return, simply list all of your business income on Schedule C. The IRS then treats all of your business income as belonging to both of you, and you'll have just one tax bill. While technically the IRS expects sole proprietorships to have just one owner, it's quite common for mom and pop businesses to operate this way.

When you use a joint tax return, your business still has just one formal owner for IRS purposes -- that is, whoever is listed on Schedule C and on the business registration forms you file with your city or county. That means you and your spouse don't have to form a partnership or deal with partnership taxes. The IRS also ignores the fact that, in most states, you and your spouse technically co-own the company because of marital property laws that give your spouse a property interest in your business.

If you and your spouse file separate tax returns, your tax return will show you as the sole owner of the business.