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Old 05-05-2015, 04:58 PM
 
1,364 posts, read 752,345 times
Reputation: 2165

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Started a business with my wife 2 years ago now.

1st year - reported $12k net loss

2nd year - reported $15k net profit

in 3rd year and forecasting to show $100k net profit


- lenders laughed when we tried to even inquire about applying for a mortgage last month and we get it, no problem. However going forward we are at a complete loss as to what to do next as we have asked 3 different CPA's we respect and got 3 very different answers..LOL

Not looking for legal advice here just "what would you do if you were us"...


We have always filed married/jointly, sole proprietor and recorded everything on Sch C. Now that I have left my w2 behind to help grow our business full time we wanted to set up some sort of business structure.

Most important thing for us is to eventually as soon as possible get approved for a mortgage (whenever that is), then tax savings, then protecting our assets last.


3 different CPA's, 3 different answers:


#1- keep everything the same and continue to file as you did previously, you arent making enough to worry about anything yet and it wont matter when you apply for a mortgage either way they will take the last 2 years income from both if you on your joint return no matter what entity you set up.


#2 - absolutely form an LLC immediately to not only protect your assets but save on self employment taxes and show you are serious about the business and its not just a hobby. The mortgage company will take you much more seriously. You do not need an s-corp as you will end up paying more in taxes, fees, filing more paperwork and is completely unnecessary and a waste of time.


#3- ONLY for an S corp because you can give yourselves W2's to show the banker. This will show you are not self-employed and are in fact working for someone else. **note: bank we went to did say that all they needed is a pay stub and it didnt matter what company it was from **



-------------



Best option to get a mortgage in the fastest time frame possible? Does it even matter?

We both have over 800 credit scores, 0 debt and 11 years of perfect rental history paying $2k/mo




Thoughts? TIA =-)
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Old 05-05-2015, 06:22 PM
 
Location: Somewhere in USA
537 posts, read 452,696 times
Reputation: 467
the answers from the CPA are good; however, they are base on their recommendations and best case scenarios. If I were you, I take all three answers and combine to one single answer and take that as the starting point of the next move. You can eliminate #3 out of the picture as the LLC is more applicable to your case in my opinion.

If you can use the house as part of a business running office, you can also write a lot of things off by year end as well.
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Old 05-05-2015, 06:27 PM
 
1,364 posts, read 752,345 times
Reputation: 2165
Quote:
Originally Posted by ameridreamNoT View Post
the answers from the CPA are good; however, they are base on their recommendations and best case scenarios. If I were you, I take all three answers and combine to one single answer and take that as the starting point of the next move. You can eliminate #3 out of the picture as the LLC is more applicable to your case in my opinion.

If you can use the house as part of a business running office, you can also write a lot of things off by year end as well.

thanks but we are currently renting... don't own a home... trying to apply for a mortgage
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Old 05-05-2015, 08:33 PM
 
Location: Somewhere in USA
537 posts, read 452,696 times
Reputation: 467
correct: You can still apply for a mortgage and use that mortgage as a business office...and so forth. They laughed because of your income ratio isn't up to par with a mortgage you were trying to get. Plus your business hasn't reached maturity yet...did you start your business as cash or with a loan? also a business is always volatile to the banks...and you know this better as well.

You can hold on to a few years 'til your income is somewhat consistence within the range of the third year. So far no good history yet except the third year and the future is unforeseeable hence they are hesitant to lend you the mortgage.
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Old 05-06-2015, 05:14 AM
 
Location: Southern California
4,350 posts, read 4,929,984 times
Reputation: 2129
I'd talk to mortgage brokers in addition to accountants.
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Old 05-06-2015, 07:26 AM
 
Location: Phoenix, AZ > Raleigh, NC
14,297 posts, read 17,491,099 times
Reputation: 22118
Quote:
Originally Posted by thelopez2 View Post
I'd talk to mortgage brokers in addition to accountants.
That's the correct answer. And I'm an EX ACCOUNTANT.

Get several mortgage brokers to tell you how to get the mortgage most quickly. THEN consult with the CPA with your other questions.

Talking to a CPA about getting a mortgage is a bit like asking a pediatrician the best way to get pregnant.
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Old 05-06-2015, 08:47 AM
 
Location: Austin
7,077 posts, read 16,885,085 times
Reputation: 9484
CPAs don't have a clue how to get a mortgage as it's not their job. They have clues about how to protect your money with various tax benefit situations. Very different situations. Definitely talk with a mortgage person.

A couple of things to think about. If you did an LLC/S-corp and gave yourself W2's, they are going to want a letter from your HR person. Oh, you're the HR person? See how that works? They aren't going to accept a letter from you about your own employment. I've had clients who work for family businesses. The company has to write a letter stating that the person has no ownership (or what percentage ownership if they do). All that comes into play because if you're part owner in the company, your risk to them is now different because your income could go away if the business is not successful.

Banks weigh their risk with you as a borrower and self-employed borrowers are very risky as are borrowers who show ownership in a company, though receiving the W2.
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Old 05-06-2015, 09:59 AM
 
1,364 posts, read 752,345 times
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much appreciate the great information.

very good suggestions.. thanks!
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Old 05-06-2015, 10:57 AM
 
4,542 posts, read 11,542,319 times
Reputation: 3063
Quote:
Originally Posted by eqttrdr View Post
Started a business with my wife 2 years ago now.

1st year - reported $12k net loss

2nd year - reported $15k net profit

in 3rd year and forecasting to show $100k net profit


- lenders laughed when we tried to even inquire about applying for a mortgage last month and we get it, no problem. However going forward we are at a complete loss as to what to do next as we have asked 3 different CPA's we respect and got 3 very different answers..LOL

Not looking for legal advice here just "what would you do if you were us"...


We have always filed married/jointly, sole proprietor and recorded everything on Sch C. Now that I have left my w2 behind to help grow our business full time we wanted to set up some sort of business structure.

Most important thing for us is to eventually as soon as possible get approved for a mortgage (whenever that is), then tax savings, then protecting our assets last.


3 different CPA's, 3 different answers:


#1- keep everything the same and continue to file as you did previously, you arent making enough to worry about anything yet and it wont matter when you apply for a mortgage either way they will take the last 2 years income from both if you on your joint return no matter what entity you set up.


#2 - absolutely form an LLC immediately to not only protect your assets but save on self employment taxes and show you are serious about the business and its not just a hobby. The mortgage company will take you much more seriously. You do not need an s-corp as you will end up paying more in taxes, fees, filing more paperwork and is completely unnecessary and a waste of time.


#3- ONLY for an S corp because you can give yourselves W2's to show the banker. This will show you are not self-employed and are in fact working for someone else. **note: bank we went to did say that all they needed is a pay stub and it didnt matter what company it was from **



-------------


There is zero difference for mortgage qualifying when it comes to a self-employed person being straight schedule C, LLC on schedule C or a S-Corp. #3 is dead wrong. Doesn't matter if you get a W-2 or not, the lender will verify if you own the company or not. If you own 25% or more, you are considered Self-employed and income will be calculated per self-employed requirements.

I think best case is they will take a two year average of the income. Since the jump is so large, the lender is going to need a sound explanation/proof that the business can/will sustain the $100k/yr. Worst case would be you will have to wait until you have 2 full years of earning the higher dollar amount.

If you have 20%+ down you could ask you local bank if they could do a portfolio loan for you now and then refinance to long term fixed rate financing once you qualify for a secondary market loan. For this to work you would probably have to be doing your personal and business banking at a local community bank now.
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Old 05-08-2015, 07:40 PM
 
Location: Durham NC
1,126 posts, read 1,177,050 times
Reputation: 868
Quote:
Originally Posted by FalconheadWest View Post
CPAs don't have a clue how to get a mortgage as it's not their job. They have clues about how to protect your money with various tax benefit situations. Very different situations. Definitely talk with a mortgage person.

A couple of things to think about. If you did an LLC/S-corp and gave yourself W2's, they are going to want a letter from your HR person. Oh, you're the HR person? See how that works? They aren't going to accept a letter from you about your own employment. I've had clients who work for family businesses. The company has to write a letter stating that the person has no ownership (or what percentage ownership if they do). All that comes into play because if you're part owner in the company, your risk to them is now different because your income could go away if the business is not successful.

Banks weigh their risk with you as a borrower and self-employed borrowers are very risky as are borrowers who show ownership in a company, though receiving the W2.
Family business situation and I faced this problem applying for a mortgage a couple of years back. Since I share the same last name as the owner of the business underwriting required a letter from the accountant stating ownership or lack of and was required to back up my stated salary.
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