Thanks, am going to check out your link now.......

This is so true.  people need to realize the issues before doing their taxes.

Okay I get it now.  Thanks for sharing.

That was very good advise - thank you!

Linda: I hope it helps you and your buyers!

Dave: Sad how many people do not realize this!

Carol: You are welcome. Hope it helps.

Thanks for the tip, I know it will come in handy.  Merry Christmas

Love your blog posts.  Always good information and never enough time for me to read all the good stuff you put out, but I try.  Thanks again.

Tax returns can certainly be a two edged sword...especially today.... underwriters are getting tougher;)

Good advice

Ut oh.......Your not going to like my thoughts on this.  I don't see how this advice is taking in consideration a 2 year average of self-employment adusted income?  Also, while I totally agree that the self employed borrower has more spendable dollar in their pocket for a mortgage payment then their tax returns may indicate.......still there are costs of running a business that do eat up lots of that spendable dollar.  With the mortgage industry efforts towards moving into a arena of "responsible lending" I see this advice as towing the line of lender fraud.  Sorry.

Christina: OUCH! Mortgage Fraud? Hold on a second. I pride myself on being a great filter to avoid mortgage fraud and do all I can to prevent fraud on any loan I am associated with.

Your definition of fraud could also apply to a self employed person that grossed 200k and netted 100k, but due to the tax codes and tax breaks shows a net of 20k for the year. We all know that they made and lived on more than 20k for the year. So that number is not real either... but it is the number used to qualify their income.

Now I am not saying that SE people should not take every tax break they can... I totally think they should!

However, in the quest to minimize any taxes owed, most self employed borrowers put themselves in a position that prevents them from qualifying. And with the loss of most stated income loans (which you may consider to be fraud as well) there are few options left for the SE borrower. And as a professional it is my job to inform them of this possibility.

If they are permitted to work the system on their taxes to get away from tax liability, and that is the number used to qualify on, why not gain the knowledge to work the system properly?

The difference is that this is not intended to be done in any fraudulent way. What someone claims on their taxes as far as deductions is their choice. And with the freedom to correct taxes, it is another loop hole created to foster more self employed business.

So before you claim FRAUD, please think it through and understand where I am coming from.

And just so you know, no offense is really taken here as I understand the argument you make. I just want to be sure you and others know the intentions behind the post.

Ed Nailor - The Ed Nailor Mortgage Team

We know Home Loans in Charlotte

Perrin: Yes, tax returns do prove to be a challenge, especially when you have a really good CPA!

Susie: Thank you very much for the kind words. I try to keep them informative and fun.

Linda: I hope it does help you! And Merry Christmas to you too.

It would be a shame for your brokerage to have to buy back a loan from the lender/investor after a 4506-t was processed.  Good luck.

Christina: This is obviously something you have an issue with. Again, the idea here is that the individual would in fact FILE their tax return with less than the maximum number of writeoffs possible. And 4506-t would show exactly what they filed. Now, if the individual wants to pay the IRS all that tax so they can prove a higher income, that is perfectly legal and ok. It is also perfectly legal and ok for them to go back later and ammend their previously FILED taxes.

Are you telling me that if an individual buys a home or refinances their mortgage and then 3-6 months later ammends their taxes to correct the lack of deductions they were legally allowed, that the lender would then want to call the loan due or request a buy back from the orginiating office? If that is the case, we all better be scared... H&R Block spends MAJOR money each year advertising that they will review your prior year's taxes to be sure you took all you were entitled to. Surely you have provided financing to someone that has at some point ammended their taxes.

I am just making folks aware that if you file with all the deductions possible, you virtually show yourself as broke for the year. But at the same time, self employed borrowers have a very unique opportunity to get many tax breaks.

If this feels like fraud to you, then I suggest you stay away from anyone that is self employed. The loop holes in the tax system are there on purpose and any good accountant, CPA or financial planner KNOWS how to work that system to the benefit of their client. What most self employed people do not realize is that the tax return Sch C is what they will be qualified on...

Best of luck to you as well.

Ed Nailor - Charlotte Mortgage Loans

Pretty cool info.  Like the new logo

Thank you Jonathan. Wasn't sure about the logo at first, but I am liking it a lot now.

Ed Nailor - Charlotte Mortgage Loans 

For those of you that might be concerned about any fraudulent implications of this, I have added the following to my blog:

I have recieved a few emails from folks concerned that this might be considered fraudulent. Please understand that I am not in any way promoting any type of fraudulent activity. However, we all know that when a good accountant is done with all the allowable write-offs that the IRS allows, the taxable income that a business owner may be left with is NOT the useable income they have lived off of for that past year. Majority of the time, the taxable income is dramatically less than what that individual actually used to live and pay bills. So using the Schedule C net income is not a totally accurate representation of a borrower's income producing ability; however, it is the number lenders use to qualifying a self-employer borrower for a mortgage. So if you are self employed and plan to buy a home, I guess the best advice is to show your taxable income as what you actually lived off of last year when you first file, and then you can go back to ammend your taxes to take advantage of the additional items the IRS allows you to write off. Self employed individuals take the most risks in life and we all benefit from that. They should also be given the most opportunity as well. Is it working the system? I guess it is... but in my humble opinion, it is no different than what the accountant can work the system for in finding additional writeoffs.