How does one determine the income shortfall

[Ready to do it 101]

I am currently self-employed. In 2010 I was W-2 through October and started a company which showed profit of about $1,000 on line 22 for 2010. In 2010 my W-2 income was 5 times over the 125% poverty level... and as mentioned my self-employment income was about $1,000. I assume there is a good chance my fiance's interview will be this year. I could have an accountant provide a P & L. I can also provide bank statements showing distributions of over $100k for this year. Ultimately though, unless the interview is in 2012 my last tax return (from 2010) shows my self-employment income of about $1,000. My household size is 3 and felt like there is no issue if I have over $70k in the bank. I may fall a bit short of that. Any idea what will be needed. Obviously, they will see that my distributions are well over $100k and why would I quit my 6 figure W-2 job to start a company making less? I guess that happens as some businesses fail, but distributions of over $100k... will that do the trick or am I really going to need a certain amount of assets? If so, how in the world will they determine how much assets? Will they use the $1,000 number from my 2010 self-employment income to determine the difference in income and 125% of poverty and totally disregard my W-2 income from 2010? Thoughts?

Comment from pushbrk

"Distributions" are not considered "income". A P & L plus a balance sheet may be helpful if provided by a CPA. Liquid assets of at least 3 times the income shortfall may well carry the day. Please start your own thread where YOUR circumstances can be discussed directly.

[Used to be broken 143]

I am currently self-employed. In 2010 I was W-2 through October and started a company which showed profit of about $1,000 on line 22 for 2010. In 2010 my W-2 income was 5 times over the 125% poverty level... and as mentioned my self-employment income was about $1,000. I assume there is a good chance my fiance's interview will be this year. I could have an accountant provide a P & L. I can also provide bank statements showing distributions of over $100k for this year. Ultimately though, unless the interview is in 2012 my last tax return (from 2010) shows my self-employment income of about $1,000. My household size is 3 and felt like there is no issue if I have over $70k in the bank. I may fall a bit short of that. Any idea what will be needed. Obviously, they will see that my distributions are well over $100k and why would I quit my 6 figure W-2 job to start a company making less? I guess that happens as some businesses fail, but distributions of over $100k... will that do the trick or am I really going to need a certain amount of assets? If so, how in the world will they determine how much assets? Will they use the $1,000 number from my 2010 self-employment income to determine the difference in income and 125% of poverty and totally disregard my W-2 income from 2010? Thoughts?

Comment from pushbrk

"Distributions" are not considered "income". A P & L plus a balance sheet may be helpful if provided by a CPA. Liquid assets of at least 3 times the income shortfall may well carry the day. Please start your own thread where YOUR circumstances can be discussed directly.

don't overthink this.

They are looking for adjusted gross on your 1040.

As for assets, the total value of all assets, must equal 3 times the difference between the povery guidelines and the sponsors household income. (spouses and kids) For anyone else its 5 times.

[Anh map 2,098]

If you can demonstrate liquid assets sufficient for a household of 3 (3*23,162 ) then you ought to be fine. Pushbrk is a pretty good resource. With your career/employment change it's a tough spot. Do you have significant equity is a home? Any non-retirement investments? They can also be put forth as assets.

This I-864 FAQ may be helpful to you. >>>> http://travel.state.gov/visa/immigrants/info/info_3183.html

[Jeff & Senia 1]

Before providing some feedback in re to reporting/portraying your current income to USCIS, can you clarify how your business is taxed under the Internal Revenue Code? You state that you are self-employed, but then use the term "distributions" instead of "draws", so it would be helpful to clarify whether you will be reporting your business activity for 2011 on Sch. C (Sole Proprietor) or otherwise? I can probably provide you with some solid insight, but it's first best to get a clarification of how your business is treated for tax purposes since distributions is the term typically used to describe payments from profits made to S-corp. shareholders.

Oh, and at the end of the day, based on a couple of references you make in your original post, you may (most likely) just have sufficient liquid assets and/or net worth to fall back on anyway. Although my hunch is that you won't have any trouble showing current income well above the required amount.

[Ready to do it 101]

Anh map- Other than about $15k equity in a car that is not paid off ($25k value and I owe $10k)I do not really have any other countable assets other than cash. I am unsure if the car is even countable. I was assuming it is not. No house, no retirement accounts etc.

Jeff & Senia. I am 80% owner of a partnership. The partnership has very few assets, other than computers and a printer. It is just myself and my partner. The company files a K1 tax return. I am paid distributions at an 80/20 split throughout the year. I personally pay taxes on 80% of the profit at the end of the year. We formed the partnership and got all of our business licenses etc in May 2010, however I still had my W2 job through October 2010, so we really didn't start doing anything until November and basically we did very little in December... end of the day Revenues were about $10k for the year 2010 (basically just November) and we paid taxes on about $1,200 as there about $8,800 in start-up costs, computers, printers, licenses, etc. So my personal 2010 tax return shows about $90k in W2 income (which was for Jan 2010-Oct 7, 2010), and then I have about $1,000 of income from my K1 partnership.

Jump ahead to 2011... I don't have a salary or set income... we simply pay ourselves in the form of distributions at the end of each month. We take the profit at the end of the month and distribute 80% to me and 20% to my partner. At the end of the year, I will pay taxes on 80% of the profit the partnership made... in other words, I will pay taxes on the distributions I received throughout the year, which happens to be 80% of the profit. I anticipate my distributions for the year 2011 will end up totaling about $130k from which I will be able to deduct about $10k in expenses on my personal tax return.... so if my fiance's interview is after I have filed my 2011 taxes in the beginning of next year there won't be any issues. On the other hand, if her interview is this year, which I kind of expect, it'd be great to know if I am going to need to show assets and if so, how much? Common sense says... "He made $90k in 9 months of 2010," and I can show them the 5 figure distributions going into my bank account each month this year (though it varies... some months $3-4k, some months $20k+). Unfortunately, the way I read the Affadavit of support... if you are self-employed they will be looking at line 22 of 2010 tax return and I need to make up the difference with assets... so essentially I would need 3 X the 125% of poverty level in cash since my line 22 for 2010 is about $1000.

My household size is 3 (includes myself, my fiance, and my child).... thoughts? do you really think they are going to want to see $70K or so in my bank account based on all of the above facts?

Before providing some feedback in re to reporting/portraying your current income to USCIS, can you clarify how your business is taxed under the Internal Revenue Code? You state that you are self-employed, but then use the term "distributions" instead of "draws", so it would be helpful to clarify whether you will be reporting your business activity for 2011 on Sch. C (Sole Proprietor) or otherwise? I can probably provide you with some solid insight, but it's first best to get a clarification of how your business is treated for tax purposes since distributions is the term typically used to describe payments from profits made to S-corp. shareholders.

Oh, and at the end of the day, based on a couple of references you make in your original post, you may (most likely) just have sufficient liquid assets and/or net worth to fall back on anyway. Although my hunch is that you won't have any trouble showing current income well above the required amount.

[Ready to do it 101]

I forgot to mention... what I am doing now is very similar to what I did as an employee in 2010. In fact, about 30% of our revenues comes from me doing work for the company I was a W2 employee of. I.e. I do work for them now as an independent contractor, they pay my partnership like an independent contractor and I end up getting 80% of that and paying taxes on 80% of it. For the year 2011 work I anticipate they will have paid the partnership about $50k for minimal work... ie. I left their company in 2010 and there are some things that only I can do for them, so they need me and they hire me (my partnership) as an independent contractor. I can basically charge them whatever I want (reasonable) to do minimal work.

Edited June 2, 2011 by Ready to do it

[Jeff & Senia 1]

First off, let me preface what I say below by stating that the fact is that your income is well above poverty threshold that is used and it is my belief that you can accomplish your objective of proving that to the CO assigned to your case a couple of different ways. My understanding is that's what you need to do---show to the satisfaction of the CO that your set of facts/circumstances meet the level of assurance that the government is looking for in regards to your "family unit's" economics.

The first way I believe you can satisfy the CO is by showing documentation of your current income along with the past 3 years of tax returns/transcripts. Documentation of current income can come from showing the payments from the partnership's account to your personal account. Copies of the cancelled checks (I know, most accounts don't get those anymore) written to you from the partnership's account along with copies of the corresponding deposits into your personal account. A statement from your bank detailing your deposit activity for the year. Even though it is you and not your partnership sponsoring your fiancee, I'd have my year-to-date business P&L handy with me in Bogota as well.

You're in the same line of work as you were before and can show your past earnings history and capability with the tax returns/transcripts. Although as a partner in a partnership you don't receive W-2 wages, you do receive partner draws. Some partnerships choose to also pay a partner a guaranteed payment off the top (which is similar/synonymous to a salary, just isn't considered W-2 wages since a partner isn't an employee) for services rendered prior to paying out partner draws. Just like a W-2 employee can use his pay-stubs for the current year, you providing documentation of the monies paid to you from the partnership provides the CO with evidence of your current income.

Now, if you or someone else feels that taking the above route leaves open some risk, or is more documentation than you'd like to provide at the time of the I-134 (oh, by the way, isn't the I-134 100% of poverty threshold and the I-864 the 125% one?), then there's another route you can take. I'm running short on time, so I'll have to follow-up, but the other route you could consider is becoming a W-2 Wage employee during 2011.

How can you do that when you are a partner in a partnership? Well, off the top of my end, there are two easy ways. 1) Let's say the entity you set-up is an LLC under your state's laws and your are being taxed as a partnership under the default classification rules of the Internal Revenue Code. Based on your prior statements, I believe it's correct to assume that if you did form an LLC, you did so in late 2010 or the start of 2011. If that's the case, then the entity can still file a late election to be treated as an S-corporation effective as of 1/1/2011. If you were to go that route, you can be an employee (W-2 wage earner) of your business. Since you would be treated as an S-corporation from the start of the year, all or a part of the monies paid to you to date could be treated as advances of wages and a catch-up payroll entry could be made to reflect such. There may also be some tax advantages to being treated as an S-corporation that are beyond the scope of this forum.

Now, there may be valid business, tax and other reasons that you do not want your entity to be treated as an S-corporation for tax purposes. If that's the case, you could transfer your 80% interest in the partnership to a newly-formed entity that is 100% wholly owned by you. Your current entity will still be treated as a partnership for tax purposes, but your 80% share will be owned by a new entity that elects S-corporation status. You probably guessed it, the your 80% of the partnership profits are now paid to your 100% owned entity and then you personally are paid reasonable and sufficient W-2 wages from your 100% owned S-corporation. Have a payroll service outfit like ADP or PayChex generate paychecks and paystubs for you that reflect your salary, year-to-date pay, etc.

In either of the scenarios utilizing an S-corporation you can also supplement your pay-stubs with a letter from your "employer". You are an employee (President).

I could expand quite a bit on the above, but on short on time at the moment. I guess in a nutshell my opinion is that you make sufficient income and have a history of making sufficient income and won't have a problem in satisfying the CO. The facts are the facts---you make the necessary income and then some---I don't believe the law was designed to recognize that and I believe the law provides the CO some latitude in considering documentary evidence in making their decision. If I'm wrong about this, I'm all ears....

I'll check back in tonight or tomorrow to see what you think and/or see if there are any differing opinions.

Edited June 3, 2011 by Jeff & Senia

[Jeff & Senia 1]

Oh, quick typo edit of the above (which it won't let me do)....

I "do" believe the law was designed to recognize the fact that you make sufficient income (not the typo of "don't").

Edited June 3, 2011 by Jeff & Senia

[Ready to do it 101]

Jeff and Senia... thank you so much for this post. A few answers... LLC was formed in April 2010 (though there weren't really any revenues until late October 2010 as I was still with my W2 position). I.e. It took a lot longer than I expected to be able to break away. Even now as I have mentioned, I still can't break away because their company can't survive without me (at least I like to think so, and based on what they pay me to do minimal work they obviously agree).

I believe you are correct in that I technically only need to show income or provide assets of 3X 100% of the poverty level. It's the I-864 where it will be 125% (I think), but I'll be able to show that after filing my taxes in a few months (Jan 2012) I am well above it so, really I need to convince them that yes I am over 100% and they shouldn't really be concerned that I won't be over 125% when the time comes to fill out the I-864 because it's obvious I wouldn't take the deductions to lower my taxable income, even if I could, if it means falling below the 125% level because then I wouldn't be able to sponsor my spouse.

In your scenario #1, I can absolutely show bank statements with the transfers from the LLC to my personal account. My concern was they are "distributions," which as pushbrk pointed out aren't technically income as I can still fill out a schedule C with deductions not taken on the K1. Ultimately, I anticipate those deductions won't be over $15 this year so I still will personally be paying taxes on roughly $120K or more for 2011. My concern was that they don't know that or I can't really prove that. I.e. Until after I've filed my tax returns in the beginning of 2012, I can tell them all I want that I am only going to have about $15k in deductions, but are they going to believe me? At the end of the day though, I am so far above the poverty line that even if I took $100k in deductions I would still qualify (I wish I had them to take).

In your scenario #2, I actually like this idea quite a bit. Only question... Assume my fiance's interview (which I will go to) is in November. If I form an S-corp in which I am 100% owner in let's say August 2011 and show a salary of say $5k/month, thus when I get to the interview I will have paystubs as a W-2 employee with a 5K salary. Is there any issue that I have only had that S-Corp for 3 months? Perhaps I should pay myself more in order to show W2 wages over the poverty level in a mere 3 months. Regardless, I like the idea. I think it solves everything.

Regarding my employer writing a letter, since I am the only employee (President) is it me writing the letter?

Thank you so much for the post. I really do think this is a great solution.

First off, let me preface what I say below by stating that the fact is that your income is well above poverty threshold that is used and it is my belief that you can accomplish your objective of proving that to the CO assigned to your case a couple of different ways. My understanding is that's what you need to do---show to the satisfaction of the CO that your set of facts/circumstances meet the level of assurance that the government is looking for in regards to your "family unit's" economics.

The first way I believe you can satisfy the CO is by showing documentation of your current income along with the past 3 years of tax returns/transcripts. Documentation of current income can come from showing the payments from the partnership's account to your personal account. Copies of the cancelled checks (I know, most accounts don't get those anymore) written to you from the partnership's account along with copies of the corresponding deposits into your personal account. A statement from your bank detailing your deposit activity for the year. Even though it is you and not your partnership sponsoring your fiancee, I'd have my year-to-date business P&L handy with me in Bogota as well.

You're in the same line of work as you were before and can show your past earnings history and capability with the tax returns/transcripts. Although as a partner in a partnership you don't receive W-2 wages, you do receive partner draws. Some partnerships choose to also pay a partner a guaranteed payment off the top (which is similar/synonymous to a salary, just isn't considered W-2 wages since a partner isn't an employee) for services rendered prior to paying out partner draws. Just like a W-2 employee can use his pay-stubs for the current year, you providing documentation of the monies paid to you from the partnership provides the CO with evidence of your current income.

Now, if you or someone else feels that taking the above route leaves open some risk, or is more documentation than you'd like to provide at the time of the I-134 (oh, by the way, isn't the I-134 100% of poverty threshold and the I-864 the 125% one?), then there's another route you can take. I'm running short on time, so I'll have to follow-up, but the other route you could consider is becoming a W-2 Wage employee during 2011.

How can you do that when you are a partner in a partnership? Well, off the top of my end, there are two easy ways. 1) Let's say the entity you set-up is an LLC under your state's laws and your are being taxed as a partnership under the default classification rules of the Internal Revenue Code. Based on your prior statements, I believe it's correct to assume that if you did form an LLC, you did so in late 2010 or the start of 2011. If that's the case, then the entity can still file a late election to be treated as an S-corporation effective as of 1/1/2011. If you were to go that route, you can be an employee (W-2 wage earner) of your business. Since you would be treated as an S-corporation from the start of the year, all or a part of the monies paid to you to date could be treated as advances of wages and a catch-up payroll entry could be made to reflect such. There may also be some tax advantages to being treated as an S-corporation that are beyond the scope of this forum.

Now, there may be valid business, tax and other reasons that you do not want your entity to be treated as an S-corporation for tax purposes. If that's the case, you could transfer your 80% interest in the partnership to a newly-formed entity that is 100% wholly owned by you. Your current entity will still be treated as a partnership for tax purposes, but your 80% share will be owned by a new entity that elects S-corporation status. You probably guessed it, the your 80% of the partnership profits are now paid to your 100% owned entity and then you personally are paid reasonable and sufficient W-2 wages from your 100% owned S-corporation. Have a payroll service outfit like ADP or PayChex generate paychecks and paystubs for you that reflect your salary, year-to-date pay, etc.

In either of the scenarios utilizing an S-corporation you can also supplement your pay-stubs with a letter from your "employer". You are an employee (President).

I could expand quite a bit on the above, but on short on time at the moment. I guess in a nutshell my opinion is that you make sufficient income and have a history of making sufficient income and won't have a problem in satisfying the CO. The facts are the facts---you make the necessary income and then some---I don't believe the law was designed to recognize that and I believe the law provides the CO some latitude in considering documentary evidence in making their decision. If I'm wrong about this, I'm all ears....

I'll check back in tonight or tomorrow to see what you think and/or see if there are any differing opinions.

Edited June 4, 2011 by Ready to do it

[Mare-n-Tram 1]

the best thing to do is demonstrate liquid assets and get a co sponsor if you have to.

[Ready to do it 101]

If I was 100% sure I would have $70k in the bank then liquid assets is the solution. But what if I don't? I need a backup plan in case I fall short.

I refuse to even consider a co-sponsor. I would never burden another individual for my responsibilities. Regardless of how confident one is in their future spouse... what if there is a divorce and she becomes a public charge for hundreds of thousands of dollars? It has nothing to do with how much you trust the person or how good of a person she is.

A divorce is bad enough, no way I would ask a friend or family member to sacrifice their financial future. That's how friendships are lost. Thanks for the suggestion, but it's just not something I would consider.

the best thing to do is demonstrate liquid assets and get a co sponsor if you have to.

Edited June 4, 2011 by Ready to do it