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Started By
Message
To deduct or not to deduct, that is the question.
Posted on 12/15/15 at 9:49 am
Posted on 12/15/15 at 9:49 am
So last year I went and used a program to help with my taxes, it got me maximum deductions. The problem is, this in turn lowered my net income. I'm thinking this year to claim every cent and not deduct a thing to have a higher net income. I went house shopping a few month ago and the mortgage lady said "Mr. Napoleon, it doesn't look good that you made $15,000 less last year than the year before." I replied that I actually grossed $9,000 more, but claimed a lot of deductions (many of which were that grey personal/business area) so it dropped my net income.
Apparently regardless of what your income is, declining income is seen as a no go and I was told to hold off until I file my 2015 taxes.
My plan is to, like I said, claim every penny of income, even the cash purchases and private party sales as business income. Then take no deductions what so ever and then get out the Vaseline and prepare myself for the raping.
There are things they don't tell you when you own a business. Now after I get the house, I'm fine with max deductions and won't care what the net income on paper is.
Has anyone else done this? I plan to play with it a little and see. I have $5500 in vehicle expenses, $2500 in donations and $1735 in returns or the like, and another $4300 in other deductions.
Not counting business expenses which I may not deduct. Looks like it will be a huge tax bill, but the flip side is a smaller net worth.
Or should I just make sure my net worth only improves by like $5k? Instead of leaving all that on the table?
Apparently regardless of what your income is, declining income is seen as a no go and I was told to hold off until I file my 2015 taxes.
My plan is to, like I said, claim every penny of income, even the cash purchases and private party sales as business income. Then take no deductions what so ever and then get out the Vaseline and prepare myself for the raping.
There are things they don't tell you when you own a business. Now after I get the house, I'm fine with max deductions and won't care what the net income on paper is.
Has anyone else done this? I plan to play with it a little and see. I have $5500 in vehicle expenses, $2500 in donations and $1735 in returns or the like, and another $4300 in other deductions.
Not counting business expenses which I may not deduct. Looks like it will be a huge tax bill, but the flip side is a smaller net worth.
Or should I just make sure my net worth only improves by like $5k? Instead of leaving all that on the table?
7
Posted on 12/15/15 at 10:15 am to Napoleon
You can always plan to file an amended return.
Posted on 12/15/15 at 10:16 am to Napoleon
There's got to be a better way of doing it than not claiming any deductions for a year 
Posted on 12/15/15 at 10:17 am to Napoleon
Ah yes, this is the issue faced by many a small business owner. They want to appear poor before the tax man, but that bites them in the rear when it comes time to borrow money to buy a house.
My first recommendation would be to, if you are not already, have a conversation with your business banker. They may be able to help you with your personal mortgage as well, and may be able to understand better your business finances and consider that when lending.
The average mortgage loan officer/broker/underwriter has no concept how to view and understand a P&L.
Obviously the issue for the lender is affordability of the mortgage. If you really, truly have those expenses, then, maybe you can't afford as much as you think you can. I assume you are not just making expenses up, but rather are playing with the line between personal and business expenses.
My first recommendation would be to, if you are not already, have a conversation with your business banker. They may be able to help you with your personal mortgage as well, and may be able to understand better your business finances and consider that when lending.
The average mortgage loan officer/broker/underwriter has no concept how to view and understand a P&L.
Obviously the issue for the lender is affordability of the mortgage. If you really, truly have those expenses, then, maybe you can't afford as much as you think you can. I assume you are not just making expenses up, but rather are playing with the line between personal and business expenses.
Posted on 12/15/15 at 10:20 am to LSUFanHouston
Oh yes Catch22.
Most likely need to pay more in taxes to qualify for the loan.
Interesting take about filing an amended return after....I like that idea!
Most likely need to pay more in taxes to qualify for the loan.
Interesting take about filing an amended return after....I like that idea!
Posted on 12/15/15 at 10:22 am to ItzMe1972
quote:
Interesting take about filing an amended return after....I like that idea!
It's a low risk, but I know most mortgages do have the ability to re-check things for so long after closing. I've never seen it happen but it's in all the papers you sign. So you would want to wait at least a year to do an amendment.
Posted on 12/15/15 at 10:40 am to Napoleon
Two Things.
1. If you're having to artificially inflate your bottom line to get qualified for a mortgage you should at least consider a cheaper alternative.
2. You can file an amended return up to 3 years later with the proper deductions.
I'd take all the deductions I was legally allowed and find either a different house or a different broker. I'm not trying to pay more taxes than I'm legally obligated to pay.
1. If you're having to artificially inflate your bottom line to get qualified for a mortgage you should at least consider a cheaper alternative.
2. You can file an amended return up to 3 years later with the proper deductions.
I'd take all the deductions I was legally allowed and find either a different house or a different broker. I'm not trying to pay more taxes than I'm legally obligated to pay.
Posted on 12/15/15 at 10:55 am to Napoleon
I am not an expert but to me this sounds like some sort of fraud? 
Posted on 12/15/15 at 11:04 am to Napoleon
They should be looking at your adjusted gross income (before deductions) when making credit decisions. Somebody's doing it wrong.
Edited: Never mind, I see that you're filing a business return.
Edited: Never mind, I see that you're filing a business return.
This post was edited on 12/15/15 at 11:06 am
Posted on 12/15/15 at 11:06 am to krehn11
quote:
I am not an expert but to me this sounds like some sort of fraud?
No, Instead of taking the deductions allowed to me by the tax codes of the IRS I would then not claim them at all, and in turn that would raise my net income while paying the IRS more than it deserves.
If they audit they would owe me money.
I'm thinking the best course of action is to amend 2013, then claim what I am due this year, but don't try to max out deductions.
Posted on 12/15/15 at 11:14 am to Napoleon
Not fraud to the IRS...fraud to the lender.
You are artificially inflating your income in order to qualify for a loan.
You are artificially inflating your income in order to qualify for a loan.
Posted on 12/15/15 at 11:16 am to krehn11
quote:
I am not an expert but to me this sounds like some sort of fraud?
Why would it be fraudulent? OP would just not take deductions he's legally entitled to. I agree with the above poster -- there's no way I'd eat a year's worth of deductions.
quote:
You are artificially inflating your income in order to qualify for a loan.
He isn't. His net income is his net income. He can choose whether or not he wants to reduce that via deductions if he wants to.
This post was edited on 12/15/15 at 11:18 am
Posted on 12/15/15 at 11:17 am to TheOcean
quote:
Why would it be fraudulent?
He's artificially inflating his income to a lender to qualify for a loan.
Posted on 12/15/15 at 11:17 am to krehn11
Read above.
Posted on 12/15/15 at 11:18 am to TheOcean
quote:
His net income is his net income
But that's not his true net income.
Posted on 12/15/15 at 11:19 am to krehn11
It is definitely his true income. Not all deductions are mandatory.
This post was edited on 12/15/15 at 11:34 am
Posted on 12/15/15 at 11:23 am to TheOcean
Net income is gross income less expenses.
He HAS expenses.
He is withholding information from a bank that is needed to make an informed decision. There is a difference in reporting, to a bank, gross income of $100,000 and net income of $20,000 when you have $80,000 of expenses.
He HAS expenses.
He is withholding information from a bank that is needed to make an informed decision. There is a difference in reporting, to a bank, gross income of $100,000 and net income of $20,000 when you have $80,000 of expenses.
Posted on 12/15/15 at 11:25 am to krehn11
Mortgage fraud is a crime in which the intent is to materially misrepresent or omit information on a mortgage loan application to obtain a loan or to obtain a larger loan than would have not been obtained had the lender or borrower known the truth.
Posted on 12/15/15 at 11:30 am to krehn11
Where did the OP say he wasn't going to claim expenses?
All he is saying is that he may not choose to deduct certain expenses. But I can guarantee he will be claiming those expenses
All he is saying is that he may not choose to deduct certain expenses. But I can guarantee he will be claiming those expenses
This post was edited on 12/15/15 at 11:31 am
Posted on 12/15/15 at 11:32 am to TheOcean
He said that he is not going to report expenses so his income looks higher to the lender.
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