Why S-Corp income can be more complicated
An owner may pay themselves wages through the business while also receiving pass-through income and distributions. The lender may need to analyze both the borrower and the underlying company, depending on ownership and program requirements.
Simple example
Assume a 100% S-Corp owner receives $96,000 in W-2 wages and the S-Corp reports $144,000 of ordinary income. That does not automatically mean the borrower's qualifying income is $240,000. The lender may need to evaluate ownership, business liquidity, distributions, trends and whether additional business income is available to the borrower.
W-2 wages from your own company
W-2 wages paid by a company you materially own can still be part of a self-employment analysis. Ownership can change how much business documentation is required.
K-1 income and distributions
K-1 income reports pass-through business income. Distributions show money actually taken from the company. Depending on the program, the lender may need to evaluate whether the income was distributed or whether the business has sufficient liquidity to support access to the earnings.
Business cash flow matters
A strong personal W-2 does not always eliminate the need to understand the business, particularly when the borrower has significant ownership or relies on additional business income to qualify.
Documents that may matter
- Personal tax returns
- 1120S business returns
- Schedule K-1
- W-2s and paystubs from the company
- Current P&L and balance sheet when required
- Business ownership documentation
- Business bank statements or other supporting documents when required