Any daycare providers that file W2's to show earnings? How is it done and how does it affect taxes?

Question

My husband and I are trying to refinance our home mortgage with some other credit cards. We were approved by a bank and then they saw our tax returns that show my income after deductions for my in home daycare. Debt to income was too high and loan was not finished. Loan officer said I need to give myself a W2 for earnings and then I would be approved. So, how is that done and does it affect our taxes in the end? Also, is it possible to get W2's made for previous tax years?

Answer 1

Your loan officer is an idiot. That won't change your total income. In fact, it would REDUCE it. And if you operate as a sole proprietorship you can't do that anyway.

You need to have your loan transferred to someone who knows what they are doing.

Answer 2

A sole proprietor is not supposed to give himself a W-2, but the IRS probably would not question it. I have a client that did give himself a W-2 and was audited by the IRS and the agent did not question the use of the W-2.
It would be more proper if you incorporated, and had your corporation give you the W-2.

To issue a W-2, you need an Employer ID number. To get one, file Form SS-4.

If you pay yourself a salary, you will have to pay the employer's share of social security and medicare which totals 7.65% of the salary. You will have this expense even if deducting the salary causes your business to show a loss.

I don't see how you could possibly justify giving yourself W-2s for prior years. You would owe tax, penalty and interest and would have to file amended tax returns for those years.