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USTaxAdvising
USTaxAdvising, CPA
Category: Tax
Satisfied Customers: 1237
Experience:  US Taxation specialist.
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I am the owner of a single member llc. I am having difficulty

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I am the owner of a single member llc. I am having difficulty with obtaining personal loans since I am not a w-2 employee. Can I pay myself as a w-2 employee so I can have pay stubs to use as documentation? Or is there another alternative?

USTaxAdvising :

Hello, Thank you for using justanswer. I can assist you with your questions today.

USTaxAdvising :

Unfortunately, as single member LLC you cannot pay yourself a wage as an employee.

USTaxAdvising :

The alternative would be to supply your Schedule C or tax returns for the past few years to provide proof of income.

USTaxAdvising :

The other alternative would be to prepare internal financial statements to show your cash flow, net worth, and annual profit and loss.

USTaxAdvising :

How long have you been self employed?

Customer:

since 2007

USTaxAdvising :

OK then generally speaking providing your prior year(s) tax returns is sufficient for lenders.

USTaxAdvising :

Have you been requested to provide this yet?

Customer:

I have a bk that year and the combination of that and self-employed status has hurt me. I have a credit score in the low 600's and could not get approved for a car loan with 50% down. Trying to buy house I rent, so that is why I was searching for alternatives.

Customer:

The auto loan lenders did not even ask. They turned me down right away. Ended up paying cash.

USTaxAdvising :

I understand. This is a bit of a tough situation. Unfortunately, you cannot payyourself a wage as an employee (i.e. issue yourself a W-2)

Customer:

If I changed status to an S-corp would that work?

USTaxAdvising :

yes, most definitely that would work. You have to issue yourself a W-2 when you pay yourself from an S-corp.

USTaxAdvising :

An S-corp does not generate self employment earnings like an LLC does.

USTaxAdvising :

This would be your best option if you have to get a W-2.

Customer:

Aha. Two questions then. Is there greater personal liability in a S-corp? And can I still have business deductions? (those are last questions.)

USTaxAdvising :

No there is actually much less personally liability with an S-corp as compared to a single member LLC.

USTaxAdvising :

yes most certainly, all the income and expenses stay in the S-corp. If you want to pay yourself you issue yourself a reasonable salary.

USTaxAdvising :

if there is remaining cash left over after your salary you can take this as a distribution, not subject to self employment tax.

USTaxAdvising :

The S-corp is generally the optimal structure for self employed folks.

Customer:

can the money stay in the corp or does it have to go out as a distribution?

USTaxAdvising :

I can stay in the corp, or you can pay it out.

USTaxAdvising :

here is an entity comparison chart you might find useful - http://www.companiesinc.com/incorporate/entity-comparison-chart.asp

Customer:

great. looks like best option. thank you

USTaxAdvising :

No problem, glad I could help

Customer:

have a good night

Customer:

thank you very much

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