jan newsletter: tax time [2019]

January 24, 2019

“By failing to prepare, you are preparing to fail.” -Benjamin Franklin

Typically, the arrival of the month of January triggers me to spend a little more time on taxes than usual. Being self-employed, I pay quarterly dues; so to be honest, it feels like I am always paying taxes. However, January signals the new calendar year, so we can fully assess the previous year with accuracy.

If you’ve ever applied for a mortgage, you know that tax returns are essential to this process, particularly the previous two years prior to application. So many people ask me, “so what do my tax returns need to look like if I want to qualify for ________?” The answer to this question is unique to the particular situation. A lot rides on how much and what kind of income you show. I am neither an accountant or a lender, so this is very basic information I have gathered via my accountant or lender and in my personal journey with taxes thus far.

  1. If you are self-employed and making over $50,000/year or you have multiple streams of income, hire an accountant. I don’t care if you had the highest grade in Accounting IV senior year, hire someone who does this for a living. Chances are, the money you will lose not being able to focus on your job while you are doing your own taxes will outweigh what the accountant will charge you to take care of it for you. Further, tax laws change all the time, and you will want this protection should you get audited. Most importantly, the peace of mind is irreplaceable. Note: the succeeding points will be kinda irrelevant if you apply this one.

  2. Do not write off every single little thing. This is tempting for those of us who a) work all the time and b) use most everything we have or spend money on to do our job. You have to show income to a lender; if you don’t, it limits the amount the lender can use to qualify you for what you want.

  3. Avoid filing an extension or establishing a payment plan to pay your taxes. Notice, I said “avoid.” If you have to do this, it is not the end of the world. Life happens. The only way this will affect your mortgage application is that it increases your debt to income ratio. If you already have quite a bit of debt to begin with, it’s probably not a good idea to increase it, if possible.

Taxes are one of those subjects we aren’t required to learn about in school, yet expected to brave these uncharted waters with ease once we reach adulthood. It’s difficult, especially now, because an increasing percentage of my generation have jobs outside of the 9am-5pm, W-2 box, or we have the W-2, but also a side hustle. I get it, but this means your tax journey won’t be as straightforward as you might expect, so you have to pay extra attention.

Here is the most crucial piece of advice in this area: do not wait until April to start working on your taxes if there’s more to it than just a few clicks on Turbo Tax. Even if you have an accountant, you will have information to gather so they can complete your file. There is a reason I’m writing about this in January instead of late March. Inevitably, I get a few texts early April from peers asking if I can help them with their taxes. The answer is “no,” but here is your reminder to get the ball rolling now. Please consult a professional; I am happy to refer several if needed.

Side Note: If you’ve bought or sold a home with me this past year, please be on the lookout for an email from me with a copy of your settlement statement attached. Should you need it sooner than Feb 1, please respond to this email or call me and let me know.


Syd Phil