the applicable ruling was issued in 1969. if you are not an employee and you are not if you are the owner of a SMLLC then you can not take a w-2.
there is are good reasons for not taking a w-2. first you overpay your FICA and Medicare taxes. an employee has up to 7.65% taken out of his paycheck and the employer pays another 7.65 % total 15.3% and the balance of schedule C income id taxed at 15.3% * .9235 or 14.13%. if the result of the W-2 is a loss there is no negative se tax computed so the owner has overpaid. no w-2 then the owner pays the effective rate of 14.13% assuming the income does not exceed the FICA limit. another reason, an owner's a w-2 reduces schedule C net income which, if the business qualifies for the full 20% QBI deduction, reduces the QBI deduction by 20% of the gross w-2.
if audited the IRS may disallow the w-2 deduction not refund the related fica and medicare taxes paid and then hit the owner's 1040 for those taxes + penalties for failure to pay them properly.
want a proper w-2, then incorporate the business - s-corp would avoid double taxation of the income and get you some QBI deduction. see a tax pro if you think about going this route. there are many things you'll need to learn so the corporate return is a mess and a prime object for audit.
