A common dream of many entrepreneurs is one day buying their dream home.
A status symbol for some, it’s the manifestation of years of hard work, determination and success.
Others just want a little corner of the world to call their own.
At last, you feel you’re there.
Off you go to your financial institution about that home loan.
They ask to see the financial records for the last two years, to ensure you’re making money and that you have ongoing income.
They ask to see your tax returns for the past two years as well.
And then you hear the last thing you expected. “I’m sorry, but you don’t qualify.”
How did that happen?
Whether it’s a dream home, new home, or little starter-upper, the path to attainment is generally the same for business owners, whether you’re a sole proprietor or you own and incorporated company.
If a home purchase is a future goal in your mind, then this is a must-know.
You don’t qualify for the purchase tomorrow. You qualify two years ago.
The formula is simple: money you made, minus the write offs, equals what you pay taxes on.
I’ve often mentioned the importance of write offs in my blogs.
It’s true their an important aspect of being successful in your business.
When it comes to buying a new home, though, you need to manage them a little more carefully.
Claiming too many write offs and setting your income too low, will affect your credit for two years.
Let’s say you make twenty thousand a year.
You could be taking a lot more money out of your business, but if that twenty thousand is a year is all you’re paying taxes on – which is really no tax at all – then you’re not going to qualify to purchase that home.
Or any other major purchase, for that matter.
Start looking ahead two years now and decide what you’re buying then.
Two years from now it may be too late.
There’s no going back in time to change what’s on the books.
So how can you make sure that the next two tax returns will see you in the right place to qualify for that purchase?
How can you know ahead of time how much money you need to be making to seal the deal?
If you’re going to make money in the next couple of years, figure out a price range for that future home.
Contact a mortgage broker and ask what you would have to make to qualify for a home in your chosen price range to get your golden number. $80,000 for example.
For the next two years, you’ll need to ensure you’ve not only made, but been taxed on, that $80,000 each year.
Many new entrepreneurs underestimate the planning.
Some assume that because business has picked up and the profits are much better now, getting that home loan won’t be a problem.
In fact, a history of reliable income is the real deciding factor.
Want to learn how to manage the bookkeeping side of your business like a pro?
How about understand the importance of tax planning?
I invite you to check out E-School. I’d love to help you find the business success to get you into that dream house.
In the meantime, see you next week here on the blog!