Thank you for the advice.  You three are important and valuable!

why are they doing this? Who gave them some guidance for it, and is it even a thing to do? Or, was that from TikTok?

1. He isn't good at saving and usually can't pay estimated taxes quarterly. So I advised a payroll with regular income tax withheld. I think this is a good solution as he will have less money to spend on personal.

2. I like the PTE credit available to California taxpayers.  It is a significant benefit that is not available to sole proprietors.

3. CA community property state would suggest that his spouse is a co-owner even without actual stock ownership.

4. Spouse won't participate - in management or as an employee - in the S Corp.  I don't like that she would be required to be paid a salary.

I'm not going to recommend that she become a shareholder.