Buying a Home

[My Daycare]

Hi, I was wondering if any of you were ever in this situation.

I pay a lot for rent. A mortgage would be only slightly more than I currently pay for rent. My husband & I are both self-employed. We have been told that, in order to qualify for an FHA loan, we have to show around 80000 to 100000 per year on our next 2 tax returns. So, I was wondering if it was legal to not write-off many of our expenses. For me, I think I would eliminate any home deductions and some expenses and my DH would have to not write-off any vehicle mileage (which is A LOT).

Is it legal to not to write-off expense or not write off deductions? If I'm not going to write off as much, do I even need to keep records of what I don't?

[AnythingsPossible]

I did this prior to buying a home. It isn't illegal to not claim your deductions, just makes your taxes higher! You may not get much, if anything back. However, ever since we purchased our home, I'm now scared to deduct what i should/can as I spent so many years not deducting to show higher income.

[TomCopeland]

Buying a home

I understand your situation. Technically it is against the law not to claim deductions you are entitled to claim, although the IRS usually doesn't care about this unless it allows a provider to claim a higher Earned Income Credit.

The problem is that the loan officer is only looking at the profit on your Schedule C. This doesn't reflect the cash you have to pay off a loan. You should add back into your profit all the expenses from Form 8829 (you had these expenses before you went into business) and any depreciation claimed on line 13 of Schedule C.

Ask to speak to a supervisor if they won't revise your Schedule C. You may want to present a cash flow statement to show exactly how much income comes in and goes out each month. You may need to be persistent and go to several banks before you get someone to listen. Call me if you want further help - 651-280-5991.

I've written about this in my book Family Child Care Money Management and Retirement Guide.