Houston Mortgage Blog

Tax Filing Blunders When Getting a Mortgage (part 5): Under-declaring

Posted by Daniel Jara on Thu, Mar, 15, 2012 @ 07:03 AM

under declaring incomeIn the past 4 blogs of this tax blunder series we have discussed the self-employed (part1); business or rental property owners (part 2); retirees (part 3) and W2 employees (part4) tax filing blunders when trying to establish a mortgage. Most of these tax blunders share in common over declaring or misidentifying expenses. But what about under declaring income? Can that really happen, do people really do that? Well yes, and this Houston mortgage broker has seen it happen more than once. Remember, if you don't pay (your taxes) you can't play.

Under-declaring income in service jobs

Many service oriented jobs receive a large component of their salary in cash. Jobs such as waiters, bar tenders, and drivers can receive up to 50% of their monthly take in cash. That’s not necessarily a problem; cash income counts just as much as direct-deposited income. The problem is when you don’t declare the income on your taxes. Never mind the potential tax evasion issue, don’t worry I’m not here to give you a guilt trip just here to identify the harm you cause yourself when applying for that mortgage, I’ll leave that up the IRS. If the income is not officially declared by you (and yes that requires you to declare it on your taxes) the cash income will not be taken into consideration by the underwriter when qualifying you for the mortgage. On several occasions I have been approached by very successful waiters or bartenders. But because they failed to declare their cash take their declared income proved to be too low to qualify for that home purchase they so desperately wanted which we both knew they could afford with their “real” take home income. Often these individuals will want to provide bank statements evidencing large deposits into their account to prove their monthly income. But remember, cash deposits into your account is only identified as a counter deposit or cash deposit and does not identify its source such as your employer. As tempting as it may be to not declare your cash income resist the temptation and pay the tax man.

Take it from this Houston mortgage broker, this is one case in which paying more taxes actually helps you buy more.  

Other common blunders to be discussed in follow-up articles:
1. Unreimbursed employee expenses (part 1)
2. Not declaring profit on self-employment income (part 1)
3. Not declaring rental properties (part 2)
4. Owning more than 25% of a partnership /LLC for which you are an employee (part 2)
5. Retiring without declaring IRA distributions / Pensions / annuities (part 3)
6. Expensing a car loan as a business expense could hurt you twice (part 4)
7. Meals / entertainment expense really counts twice (part 4)
8. Under-declaring income for service jobs (part 5)

Topics: mortgage, Tax Filing Blunders, Mortgage Companies Houston