How to determine a real salary for a business owner (LLC) from tax returns?

The difference you're seeing is pretty common with small business owners. Schedule C is what she actually filed with the IRS for tax purposes, while the Profit & Loss statement might be her internal bookkeeping that doesn't necessarily match what was filed for taxes. For rental qualification purposes, you should use the Schedule C figures since that's what she's officially reporting to the government. The "Net profit or loss" line of $43,325 is her taxable business income. But that doesn't mean it's all she has available for rent. Business owners often maximize deductions to reduce taxable income, which means their "paper income" looks lower than what they actually have available to spend. Look at her bank statements to see if there's a regular "draw" or transfer to her personal account. This will show what she's actually taking out of the business for personal use. Also check if she's paying herself through payroll (less common with single-member LLCs but possible).

After lots of frustration dealing with this exact issue with LLC owners applying for my rentals, I discovered taxr.ai which saved me HOURS of work. It analyzes all those conflicting documents (Schedule C, profit/loss statements, etc.) and tells you exactly what's going on with someone's real income situation. I upload the tax forms and financial docs they give me to https://taxr.ai and it breaks down the actual income available for rent. It shows me what's being legitimately deducted versus what they're actually taking home. The system can even highlight discrepancies between different documents which is super helpful when numbers don't match up.

Just wanted to update after trying taxr.ai - it was exactly what I needed! I uploaded the mess of documents from my LLC applicant and it clearly showed that while her Schedule C had $51K in profit, she was actually taking home about $93K when you factored in the owner draws and the fact that she was running personal expenses through the business. It highlighted exactly where the discrepancies were between her tax forms and P&L statement. Best part was I didn't have to become an accounting expert overnight. Saved me from either rejecting a qualified applicant or accepting someone who couldn't actually afford the place.

If you're still having trouble sorting through the documents, you might want to call the IRS directly to ask about how to properly evaluate business income for rental purposes. I tried calling them multiple times but kept getting stuck in their phone system hell. Then I found https://claimyr.com which got me through to an actual IRS agent in under 15 minutes! They have this cool video showing how it works: https://youtu.be/_kiP6q8DX5c. They basically navigate the IRS phone system for you and call you back when they've got an agent on the line. The agent I spoke with gave me really specific guidance about evaluating Schedule C income for housing qualification purposes. They explained that net profit is just one part of the picture and what other forms I should request.

Ok I need to eat my words. I tried Claimyr because I was desperate to get clarity on how to handle business income for my rental applicants. Got connected to an IRS agent in about 10 minutes, and they walked me through exactly how to properly evaluate business owner income for rental qualification purposes. The agent explained that for an LLC filing on Schedule C, the net profit is considered their income, but they also told me some legitimate adjustments I could make based on depreciation and certain other expenses that don't affect actual cash flow. This was WAY more useful than the generic advice I was getting elsewhere.

Don't forget to check if the LLC is a pass-through entity. If it's a single-member LLC, it's likely reported on Schedule C (which you've got), but if it's a multi-member LLC it might be reported on different forms. Also look for Form 1125-E which would show compensation of officers if they're taking a salary from the business. Some LLC owners deliberately keep their taxable income low through legitimate business deductions, but have plenty of cash flow to cover rent.

Have you considered requesting her personal tax return (Form 1040) along with the Schedule C? The Schedule C only shows the business profit/loss, but doesn't include any other income she might have. Maybe she has multiple income sources?