12-11-2010 12:56 PM - edited 12-11-2010 03:50 PM
I'm self employed as of the last 2 years and my husband and I will be filing our 2010 tax return before applying for mortgage, just so that my income will count. My SE income on our 2009 return is only $6400. My questions are:
1. The $6400 of SE income on my 2009 return is partially that low because I took a deduction of $4800 for rent. I work from home and took that deduction just because I legally could and it brought my tax liability down. Now my question is if that money can be factored back in when considering my income during the approval process since our rent had to be paid regardless of whether I deducted it (and had been for 4 years before I started my business).
2. Will they average both tax returns since both my husband's and my income are different for the 2 years or just mine because I'm the only one who's self employed?
Any help, advice, insight etc is greatly appreciated.
12-11-2010 04:12 PM
No, they can not add in the writeoffs. Certain things that are depreciated can be, but if you are claiming your rent as a business expense then it is a business expense. You can not have it both ways.
They will average your income for the last 2 years. It would depend on his employment and income if they would average. For example, if he just got a large raise a month ago, they may not count that full amount . IT is underwriters descretion.
Also, be prepared to prove that 4800 writeoff and any small business writeoffs. IRS is going after "home office" expenses pretty hard as of late. If you do nto have a dedicated office, etc it is hard to be counted as a home office. Same goes for phone lines, etc. IF they are tied into the perosnal use as well, you can only write off the % that you can prove you use. They are red flagging home businesses to make income and to catch all the people trying to minimize liability with small startups that are often (not necessarily in your case) more hobbies than businesses.
12-11-2010 05:19 PM
That's unfortunate, but it was worth a try. I'll be claiming less for my home office expense for 2010 in order to show more income. I appreciate the advice and warning. I've heard that lately too, that they go after home office expenses. In my case it won't be hard to prove but I wish I had deducted less just to show more income. Oh well.
As far as my husband's income, he was at $57k last year and will probably be at about $63k this year. Do you think they would average the 2 or just use the latter? He's been at his job for over 5 years. The reason his income fluctuates is because he works in fine dining and thus receives tips. Do you think that could turn into a problem? We really need all his income to count and I worry that if they realize his income fluctuates that they would have a problem with that. On a good note, I pulled both of our TU and EQ fico scores and we're both in the 785-805 range for both. Hopefully that will ease their concerns?
I did a lot of reading in these forums but I find that our issue is the opposite of most people's. Our credit history is excellent but our income is low (based on how much we'd need to be approved for).
Thanks a lot for your insight!
12-11-2010 06:29 PM
if he is counting tips or bonuses they will average the last 2 years...and he has to have claimed all of them. They will average the last 2 years adjusted gross income he reported. Same for you.
High scores will not affect how they count your income. It can help overcome DTI issues, etc but not how they determine in come, etc.
myFICO is the consumer division of FICO. Since its introduction 20 years ago, the FICO® Score has become a global standard for measuring credit risk in the banking, mortgage, credit card, auto and retail industries. 90 of the top 100 largest U.S. financial institutions use the FICO Score to make consumer credit decisions.>> About myFICO