Tax deductions and Loan Qualification

[Rich Hupper]

Hi Everyone

I am trying to maximize self employed tax deductions while only deducting expenses that can be later be rolled back into my income by lenders. I know it is a balancing act for self employed people. 

So far I have a list of:

Depreciation of rental property

Depreciation of business vehicle

Depreciation of business computer

Business home office space

Can anyone help me add to this list? I do not think my CPA is doing my taxes correctly. 

Also when I file taxes for my LLC can I use the items on this list as well? I want to create credit profile and tax history for my LLC where one day it will not need my personal financials as a guarantor.

Thank you

[Linda Weygant]

Originally posted by @Rich Hupper:

Hi Everyone

I am trying to maximize self employed tax deductions while only deducting expenses that can be later be rolled back into my income by lenders. I know it is a balancing act for self employed people. 

So far I have a list of:

Depreciation of rental property

Depreciation of business vehicle

Depreciation of business computer

Business home office space

Can anyone help me add to this list? I do not think my CPA is doing my taxes correctly. 

Also when I file taxes for my LLC can I use the items on this list as well? I want to create credit profile and tax history for my LLC where one day it will not need my personal financials as a guarantor.

Thank you

Well, I hate to go down this road, but it seems to me you're pretty much committing mortgage fraud here.

If you inflate your profits, the IRS doesn't really care and will happily allow you to pay higher taxes than what you ought to.

But from a lending perspective, "only deducting expenses that can later be rolled back into my income by lenders" is deliberately massaging your self employment income to qualify for a loan.  Mortgage brokers and underwriters take a very dim view of this.

Your office rent and utilities are what they are.  If you pay it and use it to operate your business, you really need to be putting it on your tax return.  Essentially, whatever you are paying to run your business, you put on your tax return.  It's not optional and it's not "a balancing act for self employed people".

The places where you have *some* wiggle room are:

1.  Choosing not to declare your home office expenses.

2.  Choosing not to declare the business miles driven on your personal vehicle.

3.  Choosing not to accelerate depreciation on new equipment purchased this year.  (Arguable an add-back anyway).

4.  Other items that are technically personal expenses that the IRS allows you to include as business expenses due to a special provision.

But you can't just pick and choose which business expenses to include on your tax return in order to make your income look better for mortgage qualification purposes.