Helpful Tax Forms and Schedules For the Self Employed

Listed below are some useful tax forms and schedules, these will help you in obtaining useful and accurate cash flow information:

Form 1040, Page one reports several forms of nontaxable income. If these are recurring, they can be added to the borrower's income. Look for tax-exempt interest income, and to see if there's any individual retirement account, pension, or Social Security income that was received but not taxed. You would know this if the amount in the 'a' column was greater than the amount in the “B” column. The difference would be added to the borrower's income.

Schedule B: Income from interest and dividends. Your main concern here is whether the income is recurring. This schedule identifies where interest and dividend income comes from. You want to know if those sources will generate income in the future. If not, remove it from consideration.

Schedule C: Profit or loss from sole proprietorship. Look for depreciation and depletion. These items are expenses that reduce taxable income. But they are phantom expenses; no cash left the borrower's hands. Add back all depreciation and depletion.

Schedule D: Gains or losses on sales. Gains or losses on sales of assets are usually one-time occurrences. Include the gains or losses from the schedule if the borrower shows a history of gains or losses. If not, they're not recurring and should be disregarded.

Schedule E, page one: Rental and royalty income. One major item is depreciation. Add this back.

Schedule E, page two: Partnership and S corporation income or loss. This is where an owner of a partnership or S corporation reports the business profit or loss. These are pass-through businesses that don't pay taxes directly. The business' income is passed through to the owners' tax return

I know looking at tax forms is not fun, but you need to understand them to determine your income, or rather the income the underwriter will allow. Enough about tax forms let'ts go back and continue