Session I: Getting Started & the Sole Proprietor
Section outline
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Students mustMark as done🚩 Report Issue🗓️ Recorded: 10/14/2025⏱️ Est. Time: 75 mins
Getting Started & the Sole Proprietor
This presentation, "Getting Started & the Sole Proprietor," is part of MGIC's series on evaluating self-employed borrowers, specifically focusing on the foundational concepts of business structures and the detailed analysis of sole proprietorships using Tax Year 2024 data.
What this session covers:
Self-Employment Fundamentals A borrower is classified as self-employed if they own 25% or more of an active business.Business Structure Literacy Understanding the five common structures—Sole Proprietorship, Partnership, LLC, S Corporation, and Corporation—is critical for identifying how income flows to the borrower and which tax forms are required.Income vs. Cash Flow Lenders must convert "taxable income" into "qualifying cash flow" by accounting for noncash expenses (like depreciation), IRS-limited expenses (like meals), and nonrecurring occurrences.Sole Proprietor Specifics Sole proprietors are unincorporated and have unlimited liability, reporting their business income on IRS Form 1040, Schedule C.Documentation and Tools Analysis relies on the loan application (URLA), one to two years of personal and business tax returns, and standardized cash flow worksheets like Fannie Mae Form 1084 or Freddie Mac Form 91.
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