@Anonymous wrote:
It's just me running the business and doing all of the work (I do embroidery on clothing and work from home). I use Paypal for 95% of my supply purchases which sometimes then pulls from my personal checking acct if there isn't enough money in Paypal.
This is a short term and long term type question.
For your business and to protect yourself individually, speak to an attorney about setting up a LLC and a CPA about the tax benefits. This is the long term solution. You pay SS tax on your gross income if you don't have an LLC or PLLC set up to reduce your taxes.
On the other hand, the lender uses your gross income and the way you have it set up right now gives you a larger gross - less your business expenses. The lender will look at your federal taxes to see if you have enough income to support a mortgage after your business expenses. There are some non-cash items the lender can add back after your deductions - like any depreciation you have taken. But it is best to speak to a LO that is familiar with working with self employed borrowers. Not all of them can read tax returns.
You might want to wait until after you buy to set up your separate business account. In the long run that is what you want to have, but check with a LO first before you start making huge changes to your current set up.
