Lets say that my friend in a waitress and deals primarily in cash. Lets just say that she is not as forthcoming to the IRS as they would hope she would be. She is interested in buying a house but did not even fill out tax returns last year. If she finds a house that she can afford, can she pay this years and last years taxes in an amount that would qualify her for the mortgage, as self employed. Has anyone done this or know someone who has?
As a slight perversion of this question. Since she is self employed independent contractor, she can claim to have made whatever she chooses, as long as she is willing to pay the taxes on that amount; yes? If she wanted to qualify for a bigger house all she would need to do is pay more taxes?
And one last question. Does anyone know what the Federal taxes are yearly for every $10,000 made?
You can go to the tax tables and see what the income tax would be. However in response to your first question she can put whatever income she wants on her taxes however if she shows a large tax bill on her returns the lender is most likely going to verify that she has either paid the taxes that are due or that she has made payment arrangements and has started paying the bill. Secondly she is going to have to provide a pay-stub to the lender for UW purposes and if the amount thaat she shows on the pay-stub is significantly less than what she showed on her taxes they are going to go off of the pay-stub earnings plus the previous years returns and average it out.
What this means is she can show 50K a year on her tax returns, but if her pay-stub reflects more like 15k-20k they will most likely average it out with the new pay-stub and the previous years returns. Hope this helps.
Thank you. As to why she would do this, I mentioned that she neglected to pay taxes last year. She is indebted to uncle sam anyway. As to why she would pay taxes on $ she did not earn, a qualifying calculator says that if she made $4,000 more last year, she could qualify (hopefully) for a mortgage on the slightly more expensive but ideal mother / daughter. She could then allow her parents live with her. Again, thank you!
Having been in a tipping business, I always instruct the people who make cash tips to report their earnings. You have stumbled upon why it is important. While you may be able to afford a loan, for whatever (Cars, Homes, School, etc) you can’t prove it unless you are claiming those tips. But on the other side a lot of tipped position people live below the poverty line if you don’t include tips in their wages and qualify for poverty level governmental funds.
Also, instead of filing for more then she should, the IRS is going to refund her overpayment anyhow when they get the w2’s from the employer. But she can file previous years Taxes. http://www.irs.gov/taxtopics/tc153.html.
But as always I am not a lawyer or a CPA, so consult your own for advice.
If you report all your earnings it will show on your w2s and tax returns. It will take 2 yrs of this to establish her income. (sorry, no more stated income loans)
In the meantime, how about finding a lease option on great terms for a couple of years?