Can I do “W2″ work as a single-person LLC?

MB asks: I have an LLC and have found a contract position through a third party. I want to be paid on a corp-to-corp basis. The third party broker says that they can only pay me on a corp-to-corp basis if I can show proof that I pay myself on a W2 basis. I tried to explain that single party LLC’s don’t pay themselves as W2 employees. I file a Schedule C. The company says that because the work being done in classified as “W2″ work (as opposed to independent contractor work), they have to be sure that whoever they contract is being paid as a “W2″ employee. Is this true? Can LLC’s not be paid for doing “W2″ work?

This is a tricky one, so I had to go digging around the Web. I didn’t find any reason that as a single-person LLC you can’t do work for which you receive a W2. That’s because when you file a federal tax return as a single person LLC, the IRS basically ignores the company and treats you as a sole proprietor anyway. (Which is a good thing, because you aren’t double taxed).

At the same time, receiving a W2 for your services as an LLC overly complicates your tax return, and you may lose your ability to deduct business expenses related to the job for which you’re being paid as a W2 employee.

Bottom line. Can you do it? Sure. Should you do it? Probably not; unless the client won’t budget and you really want the gig. And if you do it, this is one of those situations where you’ll definitely want to get a professional in on your tax return.