Should I be an employee of my wife's single member LLC?

I'm a software developer and for the past 15 years I've been moonlighting in addition to my fulltime job. Back in 2009 my wife formed a single member LLC and we started running our side jobs (she's a developer too) through the LLC. In June of this year we decided that I should quit my fulltime job and focus on OUR business for a change. It has been going ok, but not great and if things don't pickup soon then I'll probably be back in the job market again by June of 2013.

At this point, the company doesn't really make enough money for me to take a decent salary, so I'm not working as an employee of our LLC. We have a personal checking and a business checking account which we keep separate; all of our income will be reported as personal income. We spoke with an accountant who suggested this would be the best way to go for now.

Here are my concerns:

If I were to try to get another job later, it would look better if I could prove that I was an employee rather than just a dreamer/slacker that didn't make it.

Also, we are refinancing our home for a lower rate and my income cannot be considered because I am "self-employed". For future financial transactions, I'm thinking if I were an employee of the LLC, this wouldn't be an issue. Well, except...

1) To be considered a legitimate employee, I probably need proof that I'm making a decent salary. Since I'm not currently bringing in enough money for a decent salary, we would need to use the majority of my wife's income to dump into the company in order to pay me a salary. I suppose that would work, except...

2) If we use her salary to pay my salary, now we are paying taxes on her income and on my income.

3) I'm assuming there are additional expensives involved with having an "employee" - taxes, payroll processing, etc.

So what do most people do in this situation? (Plan better from the get-go, most likely, but it's too late for that.)

Thanks!

Your accountant seems to know what he's talking about.

If I were to try to get another job later, it would look better if I
could prove that I was an employee rather than just a dreamer/slacker
that didn't make it.

Anyone can look your LLC up and see that its your own LLC. What's the point?

Also, we are refinancing our home for a lower rate and my income
cannot be considered because I am "self-employed". For future
financial transactions, I'm thinking if I were an employee of the LLC,
this wouldn't be an issue.

You're thinking wrong. You're still self-employed. Basically, the banks will see it as an attempt to "trick" them, which it in fact is, nothing more.

If we use her salary to pay my salary, now we are paying taxes on her
income and on my income

Yes, if she puts her after-tax income into the LLC, you'll end up paying significant taxes again. While some of the taxes paid and LLC expenses are deductions, I doubt the IRS will allow it when the wife is just using the LLC to pay husband's salary for no (business) reason. You may end up paying all your taxes twice on the same money, in addition to a nasty IRS audit which will result in no deductions.

I'm assuming there are additional expensives involved with having an
"employee" - taxes, payroll processing, etc.

Yes. There are payroll taxes on the employer (1/2 FICA taxes, FUTA, State taxes), and payroll expenses. Your accountant will tell you more, and will be happy to charge you for this.

So what do most people do in this situation?

You can't plan everything. Generally the proper business structure would be for both you and your wife being the LLC members, reporting everything on 1065 and schedule K, and if needed - withdrawing guaranteed payments (AKA salary, in partnerships). Being employed by your wife doesn't help you with anyone who wants you to be employed, unless its a legitimate business (if your wife owns Google and you work there - no-one would mind).