Legal Question in Business Law in California

Incorporation is a good answer. The minimum tax per year, however, is $800. Filing as an S-Corp might also be beneficial for tax purposes... if you are interested in filing a corporation, let me know, and we can discuss fees. 818-783-7998

Your suggestion sounds like loan fraud to me.

Proprietors don't usually pay themselves salaries. They take draws from cash generated by, but not currently needed in, the business activity. Lenders know this. They will be looking at your 1040 Schedule C. They will be impressed if you are generating net income from the business, paying your self-employment tax, and drawing out a reasonable amount of the excess cash. Paying yourself a salary is not, per se, part of the scenario.

As a Franchise Attorney I agree with the other attorney answers, except Mr. Roach's. Your best bet is to convert the sole proprietorship to a corporation (that doesn't use your personal name). The corporation obtains it's own federal tax i.d. number, then it pays you a salary for whatever position you hold. At the end of the year, the corporation sends you a W-2. Over time, this approach will show good employment stability and you will be able to get loans more easily. Consult with a good business or franchise attorney in your area for specific advice.

Mr. Franchise - Kevin B. Murphy, B.S., M.B.A., J.D.

Franchise Foundations, a Professional Corporation