Using a Personal Business to Generate a W2 to Qualify for a Home Loan?

[longflight]

My wife and I have a small food business. I'm trying to set things up so that we can qualify for a home loan through the income that the company should pay us (right now we work for free). It seems all banks aren't loaning any money without 2 years income, and since our business does not pay us, we are kind of up snake creek without a W2.

So - I'd like to know what I need to do to issue a W2 to ourselves...how the business might need to be structured, and what sort of tax implications the business and we'd face.

Anyone have experience with this?

[KyleXY]

Not going to work. If you haven't officially done payroll for the past 2 years (per their request essentially), then you're out of luck. It gets processed with the employer division and on top of that you will owe a lot in payroll taxes, back taxes, fees, and work comp (among other probably ugly scenarios) for trying to generate W2's that date that far back. Doing fresh W2's now won't do any good as its base on payroll you've done.

If you're business has never done real payroll and only pass through taxes for a sole proprietor or LLC, that isn't real payroll warranting W2's. In other words, unless you're faking it or getting yourself into a big mess (which neither is worth it and its trackable), you're shit out of luck on that.

[longflight]

Thanks so much for the reply. After reading what you've said, I definitely agree with you that trying to go back and generate W2s is a bad idea on multiple fronts. I guess what I need to know now, is what can we do to issue W2s going forward. Is it just a matter of starting a payroll?

We are a general partnership right now. We have no employees other than ourselves.

[KyleXY]

At this point I don't know what your business structure is so I'll assume LLC but if it's not a formal structure (sole proprietorships don't count) then you should look into getting this part done first, for various reasons, not just payroll.

As for payroll, tt varies for different states and if you've never done this before, I highly recommend finding a payroll company to help you with this. There should be several options to choose from. Essentially they'll need to file your employer payroll stuff with the employer department. For example, here, it would be the EDD in California, where I'm at (Employment Development Department)

You would then need to find a separate insurance company that offers Work Comp and get that done at the minimum.

Lastly you would need to get the employer documents and all employment contracts to make it legally binding even if you are the owners and general partners. This should be done for every person as the business is a separate legal entity. In particular with the LLC, since it can be seen as a pass through structure, to ensure you get liability protection, it needs to be filed correctly rather than home made with the state. There should be an operating agreement that specifically is done legally to address this to ensure payroll for all members are considered employees of the company itself.

You would of course file W4s and W2s would be issued end of year, assuming all payroll was processed.

PLEASE NOTE: What I just wrote is a VERY VERY dumbed down version off the top of my head and I'm sure I'm forgetting a few pieces here and there somewhere. It's safer to consult a professional services company that deals with all this. It'll cost you a few hundred extra a month in payroll processing but the time it saves and headaches are well worth it.