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BK-CPA, Certified Public Accountant (CPA)
Category: Finance
Satisfied Customers: 933
Experience:  Owner of a CPA firm
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I opened a LLC with the state of illinois to do business consulting/leadership

Customer Question

I opened a LLC with the state of illinois to do business consulting/leadership coaching but I have not started doing business yet. I have been paying my own company to provide me consulting and my company is paying me for working -- I write a check to my company and my company writes me a paycheck. I am doing this because I am buying a house and need to show the lender I make more money than I actually make from my job. Is there anything wrong with this? I am paying the payroll taxes at the end of the year and I don't see anything wrong with that. I am basically buying a service from my company and paying myself to provide the service -- I am the customer and service provider at the same time. I just want to make sure I am not doing anything illegal and that there would be no repercussions.
Submitted: 2 years ago.
Category: Finance
Expert:  Shawn P Adamo replied 2 years ago.
Hello. My specialty is focusing on YOUR Financial needs. Financial Planner/Business Owner for 20 years. CPA,PFS,QFP,GMMA.
Congratulations on the new company. Please stay online.
Expert:  Shawn P Adamo replied 2 years ago.
Technically not. The issue is that you have to claim the income and pay taxes on it (payroll, federal, state, FICA, etc.) but in order to deduct these expenses you would have to have another business.
Expert:  Shawn P Adamo replied 2 years ago.
If you have two companies (ask and answer) and the LLC answer is a sub s you will show the income. Don't make the ask a sub S or you will wipe out the income (no taxes, but no income).
I think a call would be the best option. If you want this I'll send an offer. Stay online please until we complete the question/answer.
You can decline the 5.00 call and we can chat here.
Expert:  Shawn P Adamo replied 2 years ago.
We will speak as long as necessary and I'll provide you with answers and perhaps alternatives.
Expert:  Shawn P Adamo replied 2 years ago.
Please rate my response in order that I can close this question out.
It will cost you nothing extra to do so and will help me greatly.
Thank you so very much in advance.
Expert:  BK-CPA replied 2 years ago.
Hello, different expert here. Yes, there are some issues with what you are doing. There are plenty of cases where a person could hire his/her own corporation and pay it for services legitimately. There has to be a business purpose and substance over form dictates legitimacy. In your case, you have an LLC, so unless you elected corporate status you should not be taking a salary. Beyond that, paying a corporation consulting fees so that you can consult yourself serves no business purpose and in this case seems to fail any sort of substance over form criteria: you appear to be doing it solely for the purpose of inflating your income on a loan application. Accordingly, what you are doing appears fraudulent and, if so, you could find yourself charged criminally for loan fraud (like Stanley Goldblum!) :). You stated that you think there is nothing wrong with what you are doing because you are paying the payroll taxes. The IRS probably would agree, but that has little bearing on your question. The question centers around whether your loan application is legal or fraudulent, so perhaps you should ask yourself, if you were a lender and someone claimed they had a lot more income than they really did based on doing what you are, would you just say, "Oh well, the borrower did nothing wrong?" Obviously, no, you wouldn't... That said, sorry this isn't what you wanted to hear. It's possible for experts to say what the customers want to hear here instead of replying objectively because they want to get paid and receive positive feedback, but unfortunately such answers are nothing more than a disgraceful sham. In this case, I suggest you ask the first expert to provide you with some references to back the opinion that your income inflation scheme is "technically not" illegal and that the only issue is that you have to pay taxes. You decide. Best of luck.