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Old 12-09-2012, 12:20 PM
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Put spouse on the payroll in order to meet DTI for mortgage?

Hello,

Ok, so I have a bit of a complicated situation...

I just started my LLC (single member) this August. My wife works full time and earns about 35k . We are going to be looking to buy a house next year (just found out the wife is pregnant) There is a down payment assistance program in my county for first time home buyers that I would like to qualify for next year. The min/max income to qualify is 30k/75k . Here are some of my issues..

1. One stipulation of the assistance program is that there can be no co-signors on the mortage

2. My wife's current income alone won't qualify for a mortgage (we live on Long Island. Taxes are, on average, 7-10k / yr . Starter house is 300K)

3. Since my business is less than 2 years old, my income doesn't count at all.

So my problem is that while we could qualify for the assistance program (a $10,000 0% interest deferred loan), we won't be able to qualify for a mortgage (if we try without a co-signer as required by the DPA program)

My wife does help me with my business but I just don't pay her at the moment. Should I put her on the payroll in order to increase her income so that she can qualify for a loan on her own? What complications could arise from this? Would the extra payroll taxes negate the $10k anyway?

Thanks in advance for any help.

Sean



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Old 12-09-2012, 08:50 PM
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“My wife does help me with my business but I just don't pay her at the moment. Should I put her on the payroll in order to increase her income so that she can qualify for a loan on her own? What complications could arise from this? Would the extra payroll taxes negate the $10k anyway?”----->I guess you need to talk to a(foreign) loan officer for the foreign mortgage assistance program; however, you originally did not add her name to the business and actually,your spouse does not need to be a member. But in community property states, the LLC is already considered to be owned 50/50 by both spouses if it was formed while they were married. For example, in a community property , you are permitted by the IRS to treat and HW only LLC as a SMLLC on Sch C. The IRS preferred treatment is that all of the income and SE tax is assigned to one spouse. However, it is common to split the income and SE taxes equally between the H & W. The idea of the SMLLC is to insulate the family assets from business liabilities. Even if a creditor or the government can successfully attack you, your assets would be protected. As a member of the SMLLC you would have potential liability for sales /use tax, state and Federal Employment Taxes or etc as long as you have EE(s).There are three options that you can choose;1) If you, as the member, have hired your spouse as EE then the SMLLC should report the EE as other employees are reported no special handing is required. You should be reporting her, your EE, for state and federal unemployment taxes and workman comp.You need to issue W2 and withhold FICA tax for her as your EE. You will need to file quarterly Form 941 to report your income tax and SS/Medicare withholdings and payments for your EE. Depending on the amounts involved you may need to make payments of your tax liability as frequently as weekly or monthly or annually. IRS Circular E can guide you on this. In addition, you may be subject to withholding for fed/.state income taxes and also for payment of state unemployment. State laws vary, however, and you may not be subject to both of these;2) yu can treat the SMLLC as qualified joint venture;the IRS recognizes that a husband-wife business is unique, so they have made an exception for this type of business, to make it easier for the husband and wife to file tax returns without having to file a complicated partnership tax return,1065 instead, both of you and your spouse each can file his/her Sch C/Sch SE. Filing Sch C forms is cheaper than filing a 1065 and SchK/ K-1/ Sch E of 1040. Filing as a Qualified Joint Venture may have benefits to the business. Because you both file a Sch C/SE, you both pay self-employment tax (social security and Medicare) on your portion of the business profits. You must both file Sch SE to calculate the amount of this tax owed. So, both you and your spouse have social security and Medicare credits toward retirement. While you pay all of the tax (a total of 13.2%), you do receive a credit of one-half the tax on your personal tax return. As an example, if the business profits are $50K, and you share equally in these profits, you each would pay, and receive credit for, $25K in income toward Social Security and Medicare. To treat your SMLLC as QJV, you must both materially participate in the business during the year you must file your return as MFJ.Only businesses that are owned and operated by spouses as co-owners (and not in the name of a state law entity) qualify for the election3) You and your spouse may treat your LLC as a partnership. You will file the LLC's federal income tax return using IRS Form 1065. You and your spouse must each report your individual shares of the income generated by the partnership income. You will need to include a Sch K-1 for yourself, your spouse and any other partners who may have an interest in the LLC. The principal disadvantage of a PS is that it must file a partnership tax return 1065 and comply with the sometimes complex rules of partnership taxation


Last edited by Wnhough : 12-09-2012 at 10:03 PM.


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