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Hi,
Please bear with me, I really appreciate your help/ advice & thoughts on what I'm going through. I am the sole income provider for my family & these issues have been keeping me up at night as they are essential to making the right move in planning for the future. I need to file taxes soon, but before I can file I need to decide something big.
I'll post the question on top for people who don't have time to read the rest and include the background info for those who want to know my situation better. I'm sure it seems like a no brainer, but I'm having a big dilemma. Should I forego deductions so my AGI / debt ratio will look better on paper & I'll be more likely to get a loan?
After having gone through a loan last year and seeing how important the mortgage originator views AGI, why should I not maximize it? Do I allow the bank to possibly force me & family out of a needed option (we're all living in one bedroom now & if I take the full deductions I probably wouldn't qualify for 2nd mortgage under new guidelines), or do I sacrifice my tax returns and pay Uncle Sam more money in taxes than I ever have and alot more than I need to just to get a higher Adjusted Gross Income?
Theres nothing illegal about not taking deductions, right? I have absolutely zero ethical reservations because I feel like self employed people get screwed a little compared to w2 reported income during the application process. A lot of the things I would be deducting are expenses that I don't absolutely have to have next year to make the same amount of money. In fact, if I want - I can work more and earn more, right now I take Fridays off as a family day. With 60+ clients and alot of different ways to earn (I'm scrappy) I certainly feel a lot more secure than if I had one employer who might or might not have a job for me when things get tight.
Let me make something clear about my long term goals - I want to eventually be making 1/2 -3/4 of my income from property management of rental property. I realize that a huge part of buying houses is whether you can get financing in time. Once financed, I completely understand that EVERYTHING becomes keeping the units occupied with people who pay rent and which I have been pretty successful at thus far (knock on wood). But, without proper financing I'm afraid that I won't be able to be considered for kind of loan I need to achieve those goals.
Obviously, I don't want to overextend myself, but I feel comfortable with what I'm doing because the numbers for self employed people are a lot more conservative. And the fact that I'd be buying an owner occupied rental property to stay in (not flip) means that I'm in it for the long haul - I know how to advertise/ get & retain good people, have done my prop management homework & plus we live by two hospitals and three universities so I'm fairly certain the renters aren't going to dry up. In addition, another source of income that won't show up in the application is the apartment we now live in will be rented out, on top of two of the other units being up for raised rent in June. We haven't ever had a vacancy of more than two weeks (I keep people in there!) but the banks will only allow 75% rent income as well.
So in reality, what it boils down to is if I can keep two more units occupied a month (other half of duplex and our current apt) and can afford an extra 200-400 a month to offset the cost of the second mortgage than it should be very similar to what I have now. Of course I'll need twice the rainy day funds, but thats factored into my plan as well.
A little background:
Self Employed, don't make a lot but I know if I wait till the right property and situation I can make the numbers work from a management / cash flow perspective. My goals are threefold:
1) to move my growing family into a more suitable place to live (wife, son & me all living in one room at this point).
2) to continue my plan of growing a real estate property management company which will supplement and eventually bypass my dayjob business.
3) to setup a long term means of deriving income for myself and family outside of my other business that can be counted on to supplement retirement years.
Your ideas / advice are wanted! Am I crazy for even mentioning foregoing my tax deductions? If so, please tell me how I can finance the loan if a great deal comes along but my AGI or debt ratio doesn't make the cut. I'm not a big spender btw, no car payment, only student loan & other mortgage which at this point is earning me +$150 a month (and if we move out that will be around +700). Everyone knows a day difference can mean thousands of dollars in interest over the course of the loan, so even if I do lose my deductions now - if it makes the loan easier to setup and lock in at the right moment than it seems it will have been worth it.
If the IRS did audit me and say - "hey - you took this deduction last year why not this year" then I won't have done anything wrong, correct?
I should also say that we live in a stable market area in the midwest so houses here have held their values for the most part.
Thank you for the input
Please bear with me, I really appreciate your help/ advice & thoughts on what I'm going through. I am the sole income provider for my family & these issues have been keeping me up at night as they are essential to making the right move in planning for the future. I need to file taxes soon, but before I can file I need to decide something big.
I'll post the question on top for people who don't have time to read the rest and include the background info for those who want to know my situation better. I'm sure it seems like a no brainer, but I'm having a big dilemma. Should I forego deductions so my AGI / debt ratio will look better on paper & I'll be more likely to get a loan?
After having gone through a loan last year and seeing how important the mortgage originator views AGI, why should I not maximize it? Do I allow the bank to possibly force me & family out of a needed option (we're all living in one bedroom now & if I take the full deductions I probably wouldn't qualify for 2nd mortgage under new guidelines), or do I sacrifice my tax returns and pay Uncle Sam more money in taxes than I ever have and alot more than I need to just to get a higher Adjusted Gross Income?
Theres nothing illegal about not taking deductions, right? I have absolutely zero ethical reservations because I feel like self employed people get screwed a little compared to w2 reported income during the application process. A lot of the things I would be deducting are expenses that I don't absolutely have to have next year to make the same amount of money. In fact, if I want - I can work more and earn more, right now I take Fridays off as a family day. With 60+ clients and alot of different ways to earn (I'm scrappy) I certainly feel a lot more secure than if I had one employer who might or might not have a job for me when things get tight.
Let me make something clear about my long term goals - I want to eventually be making 1/2 -3/4 of my income from property management of rental property. I realize that a huge part of buying houses is whether you can get financing in time. Once financed, I completely understand that EVERYTHING becomes keeping the units occupied with people who pay rent and which I have been pretty successful at thus far (knock on wood). But, without proper financing I'm afraid that I won't be able to be considered for kind of loan I need to achieve those goals.
Obviously, I don't want to overextend myself, but I feel comfortable with what I'm doing because the numbers for self employed people are a lot more conservative. And the fact that I'd be buying an owner occupied rental property to stay in (not flip) means that I'm in it for the long haul - I know how to advertise/ get & retain good people, have done my prop management homework & plus we live by two hospitals and three universities so I'm fairly certain the renters aren't going to dry up. In addition, another source of income that won't show up in the application is the apartment we now live in will be rented out, on top of two of the other units being up for raised rent in June. We haven't ever had a vacancy of more than two weeks (I keep people in there!) but the banks will only allow 75% rent income as well.
So in reality, what it boils down to is if I can keep two more units occupied a month (other half of duplex and our current apt) and can afford an extra 200-400 a month to offset the cost of the second mortgage than it should be very similar to what I have now. Of course I'll need twice the rainy day funds, but thats factored into my plan as well.
A little background:
Self Employed, don't make a lot but I know if I wait till the right property and situation I can make the numbers work from a management / cash flow perspective. My goals are threefold:
1) to move my growing family into a more suitable place to live (wife, son & me all living in one room at this point).
2) to continue my plan of growing a real estate property management company which will supplement and eventually bypass my dayjob business.
3) to setup a long term means of deriving income for myself and family outside of my other business that can be counted on to supplement retirement years.
Your ideas / advice are wanted! Am I crazy for even mentioning foregoing my tax deductions? If so, please tell me how I can finance the loan if a great deal comes along but my AGI or debt ratio doesn't make the cut. I'm not a big spender btw, no car payment, only student loan & other mortgage which at this point is earning me +$150 a month (and if we move out that will be around +700). Everyone knows a day difference can mean thousands of dollars in interest over the course of the loan, so even if I do lose my deductions now - if it makes the loan easier to setup and lock in at the right moment than it seems it will have been worth it.
If the IRS did audit me and say - "hey - you took this deduction last year why not this year" then I won't have done anything wrong, correct?
I should also say that we live in a stable market area in the midwest so houses here have held their values for the most part.
Thank you for the input