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Daycare and Taxes>Does Anybody Else Have This Issue?
cheerfuldom 12:42 PM 04-08-2011
I run a small unlicensed home daycare. Right now I of course report all my income but I also right off quite a bit. I am having a hard time getting a lender to refinance our car loan because my income is not considered sufficient (because of the right offs). It only looks like I make a very very small portion of what I actually do. I have had this job for 4 years, have excellent credit so the only issue is that according to my tax return, it doesn't look like I have much income when I do. The lenders won't take into account that my bills are ALWAYS paid. We own our home, have been successful with numerous payoffs on cars, credit cards and other types of loans but none of this is enough apparently. Is there anything I can do to "prove" my income? or do a lot of daycare providers face this issue?
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daycare 12:45 PM 04-08-2011
Originally Posted by cheerfuldom:
I run a small unlicensed home daycare. Right now I of course report all my income but I also right off quite a bit. I am having a hard time getting a lender to refinance our car loan because my income is not considered sufficient (because of the right offs). It only looks like I make a very very small portion of what I actually do. I have had this job for 4 years, have excellent credit so the only issue is that according to my tax return, it doesn't look like I have much income when I do. The lenders won't take into account that my bills are ALWAYS paid. We own our home, have been successful with numerous payoffs on cars, credit cards and other types of loans but none of this is enough apparently. Is there anything I can do to "prove" my income? or do a lot of daycare providers face this issue?
I think that it is self employeed.... I have had another company for almost 20 years and in the last 5 years banks have almost made it impossible for business owners to take loans.... It totally stinks too... I have a good credit and the only way I was able to buy a new car was by using my tax returns and bank statements...
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cheerfuldom 01:01 PM 04-08-2011
Right, I am considered self employed but the annoying thing is that we just bought a huge new home and none of this was an issue with the home loan! But the refinance on a car loan was not happening. We had been loyal customers to this bank but they said no, a few others said no too so there is something different with a car loan I guess. It wasn't even a purchase.....just a refinance!
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daycare 01:06 PM 04-08-2011
Originally Posted by cheerfuldom:
Right, I am considered self employed but the annoying thing is that we just bought a huge new home and none of this was an issue with the home loan! But the refinance on a car loan was not happening. We had been loyal customers to this bank but they said no, a few others said no too so there is something different with a car loan I guess. It wasn't even a purchase.....just a refinance!
are they a smaller bank? i know that a lot of the banks have changed their rules
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missnikki 02:55 PM 04-08-2011
CREDIT UNIONS, people! Banks are soooooo last decade. Find a local one that works within your community, and put your money there. Mine has every member as a shareholder (each account has an untouchable bottom limit like $5 which buys you a share in the company), and they are very good about loan terms and financing. Think of a bank as a money store- like Nordstroms...and a credit union like a thrift store.
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Michael 02:59 PM 04-08-2011
You need two years good salary to show for (tax returns).
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cheerfuldom 04:05 PM 04-08-2011
This WAS a credit union! We also ran it thru a few other places but I don't know what the other places were, just that they all said no.
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cheerfuldom 04:06 PM 04-08-2011
AND I have three years self employed income on my taxes from previous years. This is my fourth year.
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Michael 04:11 PM 04-08-2011
Originally Posted by cheerfuldom:
AND I have three years self employed income on my taxes from previous years. This is my fourth year.
I gotcha, but you need to show good "spendable income". It’s one thing to make 100k a year but if you show 90k in expenses you will not get a loan in this financial climate. Gross income does not matter.
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grandmom 08:08 PM 04-08-2011
I just had my taxes finished specifically to *qualify* for a refinance. I will pay $10k more in taxes for 2010 because of it. It's the cost of getting a loan today for the self-employed.

I asked my tax guy if I can resubmit my taxes after the loan is approved. It's a huge red flag because if there is ever a problem, the loan company will think I worked the numbers just for the loan.

And yes, I have excellent credit, have made the current payments for years on the income I have. The bottom line is what the *net income* on your taxes say.

Sucks, but sorry.
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MyAngels 06:21 AM 04-09-2011
My MIL is a mortgage loan originator and she told me that, when underwriting a mortgage, the banks will usually look at home childcare provider's income as being more than the tax return because they understand the home office deduction is calculated so favorably, but that they don't do that for any other type of loan. This was before the housing meltdown, though, so I don't know if that's still true.

When we bought a car two years ago, we had to provide more documentation than we ever have with the credit union that we've used for years. It used to be basically just sign and drive, no questions asked. The lending climate is so much different now, I guess.
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cheerfuldom 06:41 AM 04-09-2011
Thanks for all your thoughts. I realize about the "spendable income" but I have just been confused that it hasn't been a problem with anything (including a home loan) except this car refinance.
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TomCopeland 06:47 PM 04-09-2011
This is a terrible time to get any type of loan.
In general, you should argue that some of the expenses on your tax return should not be counted when applying for a loan, thus raising your profit. These include depreciation from line 13 on Schedule C and all your house expenses from Form 8829, since you are already paying these bills.
Some banks will go along with this thinking, others won't. You may need to continue to shop around til you find someone who will pay attention.
You may want to produce a monthly cash flow statement that shows where your income comes from and where the money goes. This is the best statement of your ability to pay off a loan.
I've written a chapter about applying for loans in my book Family Child Care Money Management and Retirement Guide.
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legomom922 01:00 PM 04-10-2011
Originally Posted by TomCopeland:
This is a terrible time to get any type of loan.
In general, you should argue that some of the expenses on your tax return should not be counted when applying for a loan, thus raising your profit. These include depreciation from line 13 on Schedule C and all your house expenses from Form 8829, since you are already paying these bills.
Some banks will go along with this thinking, others won't. You may need to continue to shop around til you find someone who will pay attention.
You may want to produce a monthly cash flow statement that shows where your income comes from and where the money goes. This is the best statement of your ability to pay off a loan.
I've written a chapter about applying for loans in my book Family Child Care Money Management and Retirement Guide.
Can't shopping around also go againist you? We have been shopping for a refi loan ourselves, and we go through the process of seeing what the bottom line mortage payment will be, so they they prequalify us in order to do that, and now because we have been shopping, now other lenders are telling us we have too many inquiries on our credit report lately! We just can't win! It doesnt seem fait that when you shop around, you get biten too!
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TomCopeland 10:37 AM 04-11-2011
To avoid the problem of too many credit inquires, ask the bank whether they will allow you to increase your profit by your depreciation and house expenses to determine your income before try to prequalify for the loan.
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enrineusa 01:44 PM 04-11-2011
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missnikki 07:13 AM 04-12-2011
Originally Posted by enrineusa:
Thank you for the auspicious writeup. It in fact was a amusement account it. Look advanced to more added agreeable from you! However, how could we communicate? I'll just check back at www.daycare.com for you later. online poker games
You are welcome veryness of the agreed funnyness account!
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dEHmom 09:00 AM 04-12-2011
everytime they pull a bureau I heard you get dinged, which lowers your score. Then it shows on the report, and that's why they said you've had too many inquiries.
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jen2651 11:33 AM 04-12-2011
or you could just play the online poker spam that is on the thread...maybe you will win big?!

sorry, husband and I have dealt with this too...good luck!
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Abigail 08:36 PM 04-16-2011
I know "shopping around" will hinder you in the short term because it will show up as too many people pulling your report. My DH just bought his car that was leased for the last three years. We decided to take out a three year loan instead of five years just to pay it off and it actually hurt us because we have almost $200 a month more in expenses so we have less amount per month for a home loan to make payments thus can't get the home loan amount we want! UGH, since we want to get a home loan, it will look bad because we just had the credit scores checked for the car loan.

For the OP, I would definitely call around and explain the situation that you're a self-employed daycare provider and explain your gross income and how much you write off and ask what they can do for you before they pull your report. What do you want to change about your car loan? It does look bad that you just took out a huge home loan also, jmo.
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Tags:car loan, deduction, loans, tom copeland
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