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Income Verification Question

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Income Verification Question

I plan to apply for a mortgage in Feb 2016. Wife will not be on loan. My wife & I are both employed (W2).  On the weekends we do some part time sub contract work (1099).  We do occupancy inspections for banks. Wife does all the admin work, and I do all the field work.  We are not incorporated or anything, as this work is only good for about $16k a year before expenses. We operate as sole propietors. The contracts we currently work under are all in her name.  The checks we get from this work all come in her name and are deposited in my checking account. The account also has her name on it.  I dont think its a joint account, I added her to an exiting account as the bank would not give her account at that time.

 

We have always filed serperate returns.  In the past, she would show 20% of the 1099 earnings on her return, and I would show 80%. We do this by having her show me as an expense on her schedule C.

 

My question is, will all this cause an issue when I begin to seek a mortgage.  I plan to use the 1099 income for mortgage qualifying.  Is there anything we can do in 2015 to better show that 80% of the income is mine, and we are not playing games.  Will past years tax returns be enough, or is there more that I can do.

 

Thanks!

5/2009 EQ-504(FICO), TU98-567(FICO), EX- 503 (FAKO)
10/17/11 EQ-633, TU04-652, EX-681 All lender Pulls
10/17/11 TU98-678
12/21/2012 TU98-677 (39% Util)
01/21/2012 EQ - 661 (37% Util) SW Alert
Message 1 of 5
4 REPLIES 4
Established Contributor

Re: Income Verification Question

Make sure she issues you a 1099 for your subcontracting work.  Should look like jane doe dba xyz inspection services.  Check out the regs for retroactive 1099 issuance if she hasn't been doing this from her return.  She is required by law to do it, so check out those provisions as well.  Since you have been reporting the income, won't cause you any problems.  Some mortgage lender may look at it as a related party transaction, but with the above documentation you should be okay.  I would suggest though that you do everything via an LLC in the future.  Your tax return will look exactly the same, but you will get a layer of protection from creditors and other forms of liability.

 

If you added her to an account it is a joint account.  Banks will only delete a name from an account with a death certificate.  Any other way you have to close the joint and reopen as single.


@bigman023 wrote:

I plan to apply for a mortgage in Feb 2016. Wife will not be on loan. My wife & I are both employed (W2).  On the weekends we do some part time sub contract work (1099).  We do occupancy inspections for banks. Wife does all the admin work, and I do all the field work.  We are not incorporated or anything, as this work is only good for about $16k a year before expenses. We operate as sole propietors. The contracts we currently work under are all in her name.  The checks we get from this work all come in her name and are deposited in my checking account. The account also has her name on it.  I dont think its a joint account, I added her to an exiting account as the bank would not give her account at that time.

 

We have always filed serperate returns.  In the past, she would show 20% of the 1099 earnings on her return, and I would show 80%. We do this by having her show me as an expense on her schedule C.

 

My question is, will all this cause an issue when I begin to seek a mortgage.  I plan to use the 1099 income for mortgage qualifying.  Is there anything we can do in 2015 to better show that 80% of the income is mine, and we are not playing games.  Will past years tax returns be enough, or is there more that I can do.

 

Thanks!


 

Message 2 of 5
Established Contributor

Re: Income Verification Question

This is self-employment income for mortgage purposes... they will average 2 years of tax returns to count this income, and they will probably want to see it going back as far as possible. Even if your wife claims you are her employee, that would be a difficult sell to an undewriter.

Message 3 of 5
Established Contributor

Re: Income Verification Question

Not sure why you say this is a difficult sell.  All the income is documented, comes through a bank account and is reported on the tax returns.  The internal accounting balances between the returns and as long as the 1099's are correctly issued should pass any competent review.  There also appears to be multiple years of documentation.

Self Employment income is only a problem when people try to hide cash and pump up expenses to the IRS and then want an underwriter to read between the lines and add back in all the unreported income and phantom deductions.

I would again suggest a separate checking account for the business, preferably an LLC and then write checks as "paychecks" out of that account to each of you.  The accounting is cleaner, the money is protected from your and your wife's creditors as well as protecting your personal assets from your actions as an inspector.  You should be able to do an online LLC for $200 or less.

 


@Peter1142 wrote:

This is self-employment income for mortgage purposes... they will average 2 years of tax returns to count this income, and they will probably want to see it going back as far as possible. Even if your wife claims you are her employee, that would be a difficult sell to an undewriter.


 

Message 4 of 5
Established Contributor

Re: Income Verification Question

What I mean was that it is a difficult sell that you are an employee and not subject to self-employment underwriting rules... There are special rules for family owned businesses. As self-employment income, as long as you can document it on your taxes for several years, it should be fine.

Message 5 of 5
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