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As you running the business jointly with your wife - generally that is considered as partnership and partnership tax return is required.
However - according to the Small Business and Work Opportunity Tax Act of 2007 - qualified joint ventures of married couples may be treated not as partnerships.
A qualified joint venture is a joint venture involving the conduct of a trade or business, if (1) the only members of the joint venture are a husband and wife, (2) both spouses materially participate in the trade or business, and (3) both spouses elect to have the provision apply.
In this case - you will simply report each share of income and expenses of two separate schedule C's
This generally does not increase the total tax on the return, but it does give each spouse credit for social security earnings on which retirement benefits are based.
You may not simply deduct the cost of equipment - it should be depreciated over the useful life of the equipment. You may however as a small business - deduct the full cost of equipment in the first year it was placed in service - so-called section 179 depreciation. However if you had losses in the first year - you may want not to use that deduction.
You will report on the schedule C - http://ftp.irs.gov/pub/irs-pdf/f1040sc.pdf - starting inventory and ending inventory for the tax year - and only the cost of inventory that you sold or used would be deducted.
Business Use of Your Home will be reporetd on the line 30.
For additional information - see Publication 587 Business Use of Your Home - http://ftp.irs.gov/pub/irs-pdf/p587.pdf
and these is the correct form -
Form 8829, Expenses for Business Use of Your Home - http://ftp.irs.gov/pub/irs-pdf/f8829.pdf Form 8829 Instructions - http://ftp.irs.gov/pub/irs-pdf/i8829.pdf
Let me know if you need any help.