Want to see how backwards our financial system is right now?
Situation A: Self-Employed, Corporation Type S (business profits and loss are reported on personal tax return)
2006 Gross Income: 100,000
2006 S-Corp Income: -10,000
2006 adjusted gross income: 90,000
2007 Gross Income: 100,000
2007 S-Corp Income: -10,000
2007 Adjusted Gross Income: 90,000
FACT: Personal gross income was $100,000 a year
FACT: Business had $10,000 loss two years in a row
End result in seeking a 200,000 mortgage: Denied, corporate losses make you a risk.
Situation B: Employed by own Corporation Type C (personal returns are kept separate from business returns)
2006 Gross Income: 100,000
2006 Adjusted Gross Income: ~100,000 (interest+dividends-capital loss=~0.00)
2006 S-Corp Income: -10,000
2007 Gross Income: 100,000
2007 Adjusted Gross Income: ~100,000 (interest+dividends-capital loss=~0.00)
2007 S-Corp Income: -10,000
FACT: Personal gross income was $100,000 a year
FACT: Business had $10,000 loss two years in a row, but I don’t need to tell them that.
End result in seeking a 200,000 mortgage: Approved
While the numbers changed to protect the innocent, the ratios are about even.
The profits and losses are the same. The amount of the money in my checking,savings,CD,investment accounts stayed the same. The requested mortgage amount stayed the same.
The only difference? I won’t have to tell the bank my company lost money the past two years if I had incorporated differently.
How stupid is that?
