I have an LLC where the ownership is split 50-50 between my wife and I. She is not active in the business in any way, it was just originally set up this way. Our business is set up in Ohio and is not a community property state if that matters.
I am making the S Corp. election this year and have a few questions about the necessity to pay W-2 wages to all shareholders.
If my wife and I file a joint return, is it acceptable for me to be the only one receiving a reasonable W-2 wage, but both of us receive 50% of the K-1 income? I would being paying the reasonable wage based in the total 100% income.
Or is it required in this situation where she's not receiving w2 income, that we move 100% of ownership to me?
If we can keep the 50-50 split, what would I mark on the return for her K-1, for material participation and passive vs active? Any other special things to do to the return?
Thanks for your time.