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How to Fill Out Profit and Loss Statements

Discussion in 'Chase Mortgage - Tell Us Your Chase Story' started by ganggreen, Aug 11, 2010.

  1. ganggreen

    ganggreen LoanSafe Member

    I recently started a job as a 1099 and have a few questions about developing a P&L Statement as I attempt a Loan Mod. Can I add my health and Dental Insurance as an expense to the P&L. I really have no other expenses as I get reimbursed for Mileage and travel. I work from a home office.

    Also I have not incorporated as an S corp or Sole Proprietor. Does this make a difference when saying you are self employed and submitting a P&L to the bank?

    Lastly, if I contribute to an IRA can this be listed under expenses?

    I am sure I can list these as expenses but I am unsure if Chase will count them as expenses. Any insight is appreciated.
  2. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    Yes, health and dental insurance can be included, but not your IRA. Money contributed to an IRA is income regardless. You are just saving it with tax advantages etc.

    If you are 1099's then this is looked at differently because you have operating expenses and tax write offs. They will just be a bit more picky with your file and in qualifying you.
  3. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    You aren't suppose to claim medical under the plan unless it is established for employees as well as you. And even then you may need to be incorporated.

    A P&L is suposed to be a picture of the monthly cash flow of your business income and expenses. If you were renting an office, or paying utilities, or buying supplies, but not items that benefit you directly. For example, if you claimed the IRA deduction as an expense for your business, you would have to claim it as income personally. If you were incorporated, you might be able to claim matching 401K contributions, but If you are an officer of the corporation, who knows.

    And they will scrutinize it more closely if you don't have prior year tax returns to verify the expenses. I am self employed 1099 as well and I know how you want to keep your income low to keep the 31% of income low too. But each $100 increase in income is only $31 added to your payment. So to really save a significant amount, you need to find hundreds in write-offs, and then risk getting caught committing fraud. You really are better off just using actual figures.

    And I have another suggestion to keep it simple for the idiots at the bank. Don't count your paycheck as "income" call it "gross receipts" then list whatever expenses you do have a business expenses, and you can call the bottom line "Gross Pretax Income." You don't want to confuse them into thinking your gross income is your net by having "income" listed twice.

    If the check includes your vehicle reimbursement, make sure you include a line for insurance, washes, maintenance, towing coverage, but not depreciation since that is not a cash outlay. But you can include the monthly payment. If your payment is $500 a month, and you use it 80% for business, you can deduct $400 for the payment. Same with the insurance. It could end up your actual expenses add up to more than your reimbursement.
  4. ganggreen

    ganggreen LoanSafe Member

    Thanks for info guys, I receive a paycheck of XX per month which is my Gross Pay. Since I am reimbursed for Mileage , travel costs plus cell phone I really do not have any other expenses. Should I just keep it simple and keep my gross "Receipts" pay the same as net income.

    Will they scrutinize it more if I deduct Home office, Internet and a portion of my car payment? I would prefer to keep it easy for them. Also I just started 2 months ago and do not have Tax returns indicating 1099.
  5. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    You can't deduct for home office, since that does not come out of cash flow. I would be careful about making it too simple, they could say it isn't in the proper form. You could include vehicle reimbursemnt/cell phone income under gross receipts and then list all those expenses seperately. You could try listing health insurance as a business expense, but it is really a personal expense, and could be taken to indicate you are trying to hide your income. I don't know how close they will really look at it. And in my case, I needed to increase my bottom line, not decrease it.

    It might appear more detailed and professional. You need to include at least 3 months of P&L statement. I just submitted mine with the whole year-to-date. You can kind of guide them. They are suppose to use the last quarters income, but if want them to average out the whole year, you can include a line for "average monthly income y-t-d' or "average monthly income last fiscal quarter", or "most recent 3 months average income."

    Since you do not have tax returns, they will need to see corresponding monthly bank statements, with deposits matching income. They asked for mine, so I sent them in with each line having written in- 'water bill' 'health ins' 'business income' etc.
  6. TomEason

    TomEason LoanSafe Guide Staff Member

    I prepare my own P&Ls. It doesn't matter what kind of business entity, from sole proprietor to C Corp and everything in between. A general rule to them is this: if you can deduct an expense on Schedule C of your tax return, then you can list it as an expense on your P&L. And if you don't list it there, you can itemize it elsewhere on the budget you submit with you loan mod app.
  7. davephx

    davephx LoanSafe Member

    Couple comments from my prior life as a tax supervisor at old "Big 8" (in those days) CPA firm.

    If your a C corp you are only an employee required to have a W-2 etc unless your just paying yourself non deductible dividends which would be totally foolish.

    S Corps get more messy since your both an employee supposed to get W-2 for distributions representing services and undistributed taxable income for the rest. Big tax issue here since many people cheat and underpay as employees (to avoid FICA etc taxes).

    Auto - can never deduct part of "payment" since only interest is expense, principal is based on depreciation - but not used in theory for HAMP deduction. Most bankers are not accountants so like NACA come up with some crazy accounting methods, like just circle bus income and expenses on bank statements (totally misses credit card charges and payments each month have no baring on monthly expenses unless you pay off each month.

    In theory no office in home deduction.

    How you treat or try to treat some things may depend on whether you need more income or less. Less may disqualify for not enough income.

    As I recall the HAMP rule is P&L either year-to-date (ending within 90 days) or last 3 months. Once submitted do not have to update. But when banks don't follow the directives who knows what they will ask for.

    As Menace correctly pointed out no IRA deduction, no medical unless its a employer plan (usually pay more but that is the IRS rule of Sch C).

    If self employed there is regular 401K but a "Solo" or "Indvidiual K" Plan and there are both empolyee and employer contribution options. Only the employer portion would be deductible on your own contribution.

    But who knows what a bank will use since again most are not accountants.
  8. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    Since a P&L is a little different, and you can't deduct depreciation on a P&L, I think it is perfectly legit to deduct your car payment, since you are in fact buying that item for business use. You could break it down by interest and principal payment out of each months payment, but it adds up the same. If you went out and bought a new car every month, you could certainly count that as a business expense on a P&L.
    With a payment, you are actually buying a car a little bit at a time. Of course, it is different on a tax return, but still, only that percentage of expenses used for business are allowed, and the principal is accounted for with depreciation based on the average lifespan of the item, and may have nothing to do with your actual cash expenditures. I used to deduct the entire costof a vehicle(truck) in one year under the expensing alowance designed to stimulate spending by business. It made things more complicated when going to trade that truck in. I was putting 200k miles on a truck every 18 months or less. Made my taxes complicated exchanging them that often.
  9. lisasxr

    lisasxr LoanSafe Member

    Unless the vehicle is leased, only the interest portion of the payment should show on the P&L.

    If you have not incorporated or otherwise structured your business, you are a sole prop.

    You stated you receive a paycheck - does your sole prop business provide you with a paycheck - or do you really receive a check against the invoice your provide your client for services? If your sole prop business provides you with a paycheck, then you will have ER taxes that would be on the P&L. If your invoice to the client includes travel costs and cell phone, thusly including these costs in your gross receipts, then yes I'd add the expenses to the P&L.
  10. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    For your tax return, only the interest should be deducted, but for a monthly profit and loss, designed to indicate your monthly income, you should deduct your entire car payment, or whatever the business percent of use is. Tax returns and P%L are different.

    If this was not the case, you could be buying computers, office furniture, services, and making payments on all of them , totalling in the thousands, and you would show an income that is grossly exaggerated. The P&L is suppose to give a picture of your cash flow, not your tax liability.
  11. ganggreen

    ganggreen LoanSafe Member

    Guys, thanks for all the information. I just received my packet from Chase for a loan Mod. Under Self Employed it asks for 4 months of Business Bank Statements. I did not incorporate and do not have a separate business Bank account. I just deposit my check into my joint personal checking account. Should I send my Personal Bank Statements and include a letter or note indicating that is the case. Second question is if I do not have Business Bank Statements will they decline my Loan Mod right off the bat.
  12. Moe

    Moe Call 1-800-779-4547 Staff Member Loan Safe Mortgage

    Submit your checking account statement and highlight all the business expenses and income. You don't need a seperate account. Instead of a seperate letter, write your note on the statememnt itself. I don't think they even look at letters. It would get seperated and lost somewhere. 4 months seems like a lot, when all that is required is the last quarter.

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