Larger Tax Refund or Larger House? Pick one.

      It's tax season. Many people are looking for the fastest way to file and get their money back so they can use that money for large purchases---like a down payment on a home.  In order to get a larger refund, you will usually identify expenses that will allow you to lower your taxable income. Many tax preparation companies advertise that they can get you the maximum refund but is that in your best interest when you're planning on purchasing a home?
      One common misconception about tax refunds is that they are a 'good' thing. A refund simply means you've overpaid in taxes the previous year and are being refunded.  While this annual check is good for some, many could do more with that money during the year.  Instead of the making the IRS a savings account, you can save that money yourself throughout the year and put it towards things you need.  The self-employed understand this and their main goal is to either break even or owe as little as possible.  Running a business requires you to use all available funds for expenses that must be paid in order for your business to sustain and grow.  However, when those that are self-employed go to purchase cars or properties, they soon learn that claiming all of those expenses and/or taking losses will decrease their taxable income which is what lenders use to qualify you for a mortgage.  It's common for some one with a million dollar income to only show themselves making $25k-$30K annually! As much as it hurts, you must show your true expenses in order to increase that number in order for a bank to lend you an mortgage that reflects your income.
      Another popular misconception is that this only affects the self-employed since a W-2 employee has taxes taken out automatically. Not the case. There are a LOT of W-2 employees that claim additional dependents, write off expenses from side businesses, rental properties, and will even claim losses in order to get a bigger tax refund.  Unnecessary expenses will lower your taxable income and decrease the amount of your potential mortgage.  In both self-employed & W-2 employee cases, your tax returns cannot be immediately amended and then reconsidered AND they have to reflect these numbers for two years.
      If you plan on purchasing a home in the next few years, be sure to connect with a loan officer before you file your taxes. They know more than just credit scores!!! They will show you what banks are looking for on a tax return and can provide tips on how to increase your chances to get not only approved, but increasing the amount you can get approved for.