Yes, another tax question

Discussion in 'Business Operations' started by Expert Lawns, Feb 17, 2005.

  1. Expert Lawns

    Expert Lawns LawnSite Silver Member
    Posts: 2,660

    I just added up all my income and all my receipts. I am looking to buy a house and would like to show as much income as possible. Are there any secrets to do this? Does it hurt my net income if I write EVERYTHING off? thanks
     
  2. scott's turf

    scott's turf LawnSite Senior Member
    from NH
    Posts: 949

    The more you write off the less taxable income "net income" you have which means the less money you have to pay for a house, hence the less a bank will loan you.
     
  3. mtdman

    mtdman LawnSite Gold Member
    Posts: 3,137

    There are loans and programs that do not need you to show proof of income. The mortgage I got was based on "stated income" which was a combination of my income and my wife's. Basically I had to state our income without proof that we actually made that much, and the mortgage company kinda just took it for granted.

    When doing taxes, unless you want to pay out the ass, you try to show as little income as possible, taking advantage of every write off and deduction you can. However, that isn't a great thing when applying for credit. The loan I got was based on the fact that many deductions and write offs are not based on actual expenses, and your actual income is in actuality greater than what you report to the IRS.

    Unfortunately for those of us who are self employed, this whole thing is a sucky subject. On the one hand, the only way we CAN prove what we make is our tax returns. But on the other hand, we don't want to show a huge net income on those returns in order to minimize taxes. A real catch 22.
     
  4. Littleriver1

    Littleriver1 LawnSite Senior Member
    Posts: 811

    The bank is going to want to see your Tax Return. May want more than one year. Don't see how to hide from that. Hiding the truth is a kind of false security. It would be better for you if the loan was turned down than to buy a house you can't pay for. Some one I know did a good job of hiding in come from her business untill she needed a loan. Anyway the truth is the best policy. good luck
     
  5. marko

    marko LawnSite Senior Member
    Posts: 963

    If your personal credit is good, go for a no income verification loan. The rate is a bit higher, but you can forgo a discrepancy that will probably appear when you make $60,000 this last year, and "made" $30,000 all of the other years. They will probably want to see more than 1 year anyway, especially self employed.
     
  6. northmichigan

    northmichigan LawnSite Member
    Posts: 133

    banks loan money to business that have a proven track record of making some money and paying back loans on time. here in michigan there are many new banks looking for loan customers with established credit.banks understand business and can see if you are a business that is worth taking a risk on.banks known that smart small business invest in themselves and therefor show less income on their taxes.this is called tax planning.
    best of luck to all.
    mj
     
  7. Expert Lawns

    Expert Lawns LawnSite Silver Member
    Posts: 2,660

    My credit score is good, not excellent. One thing that is hurting me is that I have had my credit pulled A LOT in the past 180 days. That is a negative mark on your report. Alos, being self-employed I am an "at risk" buyer. If I get hurt, how am I going to pay my mortgage. I don't have $10,000 in the bank to back me up. I wish I did but I don't.
     
  8. mtdman

    mtdman LawnSite Gold Member
    Posts: 3,137

    He's not asking about getting a loan for his business, he's asking about getting a personal mortgage. Big difference.

    Mortgage lenders base loans in part on income. You can have the best credit score in the world and not have enough income to afford a home. You could show 100% income on your taxes if you wanted, to inflate your actual income to get a better loan. But that would be tax suicide.

    My point is, there are plenty of programs and loans for self employed business people who cannot prove their income. Don't be afraid to take all your deductions and write offs just to make your income look better. Stated income loans are just one of the options. It doesn't mean you are lying, it just means you take into account the actual income you bring in, not what your taxes state. If you take advantage of all the legal deductions and write offs available, there is a big difference between the two.

    As I said, for small upstart self employed business people, credit issues can be a pain in the but.
     
  9. MacLawnCo

    MacLawnCo LawnSite Bronze Member
    Posts: 1,847

    most large corporations keep two sets of books. one that they report to the IRS (more agressive tax law usage) and the other that they report to shareholder (must comply with GAAP). Perfectly legal. Same thing you can do. Just show them your statements that are as conservative as possible while at the same time be as agressive as possible with the IRS.

    the issue with agressive tax usage, well it goes like this. If you use a larger portion of your depreciation this year, all you are doing is defering your tax liability. You can choose to pay now or later but no matter how you run your depreciation you are still going to come out owing Uncle Sam the same (not factoring in the time value of money).
     
  10. northmichigan

    northmichigan LawnSite Member
    Posts: 133

    the option i was presenting to a self-employed businessman was how to present his income to a bank explaining his large deductions are a function of his expanding business.making him look more attactive to the bank.
    i forgot to say that the real 'secret' for self-employed people is having real estate to leverage to the bank for collateral. then sir you will get loans.
    mj
     

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