It is funny when bankers try to analyze tax returns for loans. Tax returns are not financial statements. Tax returns normally try to show the lowest possible legal net income, so they produce the lowest possible tax. That usually makes tax returns good for bankers, trying to see if you can repay loans. They know few would report more net income than necessary. However, this does not apply to tax returns prepared when you know loans are likely. Nothing requires tax returns to be consistent. More important, NO LAW REQUIRES TAX RETURNS TO TAKE DEDUCTIONS. That makes it ridiculously easy for tax returns to increase net business taxable income for loans, as long as you can pay high taxes (or higher taxes than you already pay).
Loans should require financial statements, which supposedly require conservatism and consistency. Now there is something we all could use more: conservatism and consistency). Businesses often try to use financials to present a good picture for loans. There are many ways to do this, as slow straight-line depreciation is as legal as fast 179 (all in one year) depreciation.
I heard a funny story on this. In the good old days (2 years ago), a man wanted an expensive house. He needed full financing, so he needed to show big income. He got his company to report his income and a friend's income as his income (incredible as it sounds). With this "documented income" on his tax return for the loan, the mortgage company agreed to the loan. However, it would not close when they found prior tax liens. That left him with no house and a tax bill of about 15% of the house value. So why was he happy?
Please click an ad while you think. ESPECIALLY click an ad to punish anyone for advertising something NOT related to QuickBooks or other things that interest you. I am not allowed to do this, but you are free to do so. There is a funny answer below.
The house is now worth 70% less!
I cannot help it if my jokes make me sound like a tax fighting QuickBooks CPA. What else would you expect from the http://www.QuickBooks-Blog.com/?
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