My self employed advice on taxes/write offs

[GPMDRL]

Hi all, been a lurker for a while and just got my loan approval and this I have some helpful advice. I'm self employed and can have a ton of write offs every year. I knew I'd be applying for a mortgage this spring so I was very worried about writing everything off and showing less income. I'm a single owner llc, use turbo tax so it's a little easier for me but here's what I did. I gross about $250k and usually net around $90k. This year I did my taxes as normal but didn't take all of my deductions that I could have documented and didn't include my stock losses from the year. I showed I netted $120k this year which made me have a big tax bill I submitted taxes electronically the last week of March and did my mortgage pre approval April 4. I got approved for more than I needed and was never questioned on the tax balance I owed which was about $12k. I put an offer on a house and started the real application which had me nervous. I was approved yesterday no questions asked. My plan now is to amend my taxes after I close to include all of the write offs I didn't take but could have. I can prove them as legit deductions if audited. It's will bring me back down to my usual net of around $90k yet for my mortgage they saw it as $120k. Nothing was ever questioned and I went thru 2nd level underwriting as well. Just something some self employed may want to think about so they don't get penalized for taking all their write offs! Oh yeah, this was a conventional loan thru Wells Fargo .

[Mike_B03]

That's the problem with being self employed and trying to get a mortagage, you either pay taxes and get approved, or you take write offs and get denied.

Could you amend you taxes? Sure, I dont see why not, but just realize that technically it is mortgage fraud. Will anyone ever find out? Highly doubtful but guess anything can always happens. Now why is it techically mortgage fraud if those deductions are legal to take? Because if you are taking the deduction, then techinically they are business expenses which means you dont have the funds for personal use and therefore should not be counting it toward qualifying for a mortgage. 

[sandrachicago]

How did they calculate your monthly income? Did they divide your 120k by 12 months or they averaged your income for last 2 yrs then divided by 24? Both me and husband are 1099 and have huge difference between this year and last year incomes so we wonder what will our monthly income be? Thanks for all the help

[MrChairman]

Mike,

I disagree with your statement that this is mortgage fraud. This is simply someone using the tax laws to their advantage. I have a "normal job", active duty military but I also have a side business that makes no money and I just use it as a vehicle to take deductions through the year. I usually have about 6k in deductions per year. I decided not to take those deductions this year because of applying for a mortgage. I missed out on another 5k from the man this year. When he submitted the info to the mortgage lender it was all factual. Nothing is illegal about amending your taxes.

[StartingOver10]

Mr. Chairman, it's not the fact of taking the business deduction or not taking it.

You are correct, that if you have a business you can take, or not take, whatever legal deductions the IRS allows.

The issue is this:  if you make application with a lender for a mortgage loan and you supply accurate tax returns showing your income is $X,  the calculations and approval is based off of the written and verified tax returns you showed. However, if you go back and amend those returns after you close to reflect business expenses you did not show to the lender, then the lender has a false idea of your capacity to repay the loan. You have misled the lender by showing your income as higher than it is with the deductions. If you have to go back and amend two years worth of returns (the two years you supplied to the lender before the loan was issued) then it is a deliberate attempt to mislead the lender into loaning you more than you qualify for based on the new amended returns. That is where the fraud comes in - you showed a higher amount to the lender so you could qualify for a larger loan. Providing false or misleading information on a mortgage application is fraud.

If someone knows differently, please post.

[Mike_B03]

I think the potential fraud comes in if it's deliberate or not. If you have a plan to not take deductions so you qualify for a mortgage, and then after you get the mortgage, you amend the taxes, then I believe that would be considered fraud. If you honestly didn't take a deduction by mistake, and realize later...say the next year when you do your taxes or the accountant realizes etc, then it's a different story. Proving one vs the other? Probably hard to do, depending on the circumstances (such as, if you took a $6000 deduction every year for the past 5 years for vehicle expenses, but then the year you apply for a mortgage you didn't, only to go back to amend the taxes would seem a little fishy). Chances of someone catching on are probably nill, but there is always that a very small chance I guess.