Calculating Income from 1040, K1 & 1120S (S Corporation) Tax Return Review Series December 2017
Genworth Mortgage Insurance Corporation ©2017 Genworth Financial, Inc. All rights reserved. Objective
Understand the meaning of “Self Employed”
Learn to use Fannie Mae’s Form 1084 to calculate supportable income using tax returns. We will also include a brief overview of Freddie Mac Guidelines
Complete Fannie Mae’s 1084 – W2 from 1120S (Section 1) – 1120S K1 Review (Section 9) – 1120S Review (Section 10)
Complete the Solvency Calculator – Solvency/Liquidity Test
Tax return Series Form 1120 with K1 Fannie Mae Updates
SEL 2015-09 – Cash Flow Analysis Form updated – Sections of Chapter B3-3-2 for Self- Employed Borrowers updated • Evidence of liquidity if no distributions made from partnerships or S corps – DU updated to allow one year personal and business tax returns for certain case files – Changes effective for applications dated February 1, 2016
Tax return Series Form 1120 with K1 2016 Fannie Mae Updates
SEL 2016-05 – Updates to Business Income • Eliminate requirement to confirm borrower has access to income • Guidance for methods lenders may use to determine adequate business liquidity when liquidity assessment is required • Verbal verifications of employment for a self-employed borrower can be obtained within 120 days prior to note date – Chapter B3-3-1.07, 09 and B3-3-2 of the Selling Guide have been updated – Effective on or before October 1, 2016 but lenders and implement immediately
Tax return Series Form 1120 with K1 S Corporation Income
Tax return Series Form 1120 with K1 Not Using Self Employed Income
Tax return Series Form 1120 with K1 Not Using Self Employed Income
When Do We Have To Tell Loan Product Advisor Our Borrower Is Self- Employed?
Tax return Series Form 1120 with K1 Freddie Mac Updates
Tax return Series Form 1120 with K1 Training Tools and Information
Tax return Series Form 1120 with K1 Training Tools and Information
Tax return Series Form 1120 with K1 10 You’ll Need Calculators-
Tax return Series Form 1120 with K1 You’ll Need-
Tax return Series Form 1120 with K1 The Case Study… The Case Study Alice Firstimer Alice is a 50% shareholder of an 1120S. Her reported taxable Income is several sources as evidenced by her 1040. Our session today will focus only on her 1120S Income from Smith and Firstimer
Other sources may be used to qualify, but our session will focus for training purposes on this one business- An S Corporation
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Tax return Series Form 1120 with K1 1120S Corporation H K1 %
Line 1 Ordinary Income $______Line 21 Ordinary Income $______Net Income $______
Schedule E
Part II 1040
Line 17 Net Income Sch.E *$______*Taxed at a personal rate
Tax return Series Form 1120 with K1 14 Form 1120S / S-Corp Return
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Tax return Series Form 1120 with K1 1120S Corporation H K1 %
Line 1 Ordinary Income $______Line 21 Ordinary Income $______Net Income $______
Schedule E
Part II 1040
Line 17 Net Income Sch.E *$______*Taxed at a personal rate
Tax return Series Form 1120 with K1 16 Review the K1
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Tax return Series Form 1120 with K1 1120S Corporation H K1 %
Line 1 Ordinary Income $______Line 21 Ordinary Income $______Net Income $______
Schedule E
Part II 1040
Line 17 Net Income Sch.E *$______*Taxed at a personal rate
Tax return Series Form 1120 with K1 18 Review Schedule E
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Tax return Series Form 1120 with K1 1120S Corporation H K1 %
Line 1 Ordinary Income $______Line 21 Ordinary Income $______Net Income $______
Schedule E
Part II 1040
Line 17 Net Income Sch.E *$______*Taxed at a personal rate
Tax return Series Form 1120 with K1 20 Form 1040
Reports to Line 17
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Tax return Series Form 1120 with K1 Let’s Begin!
We will use the 1040 to identify the if any wages were reported (line 7).Then we will review the corresponding W2 forms.
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Get Out Your Cash Flow Calculator and Case Study And Let’s Begin
Tax return Series Form 1120 with K1 Fannie Mae Cash Flow Form 1084
Are any W2 wages from self-employment?
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If yes, determine if the borrower owns 25% or more of the entity that issued the W2!
Tax return Series Form 1120 with K1 Fannie Mae Cash Flow Form 1084
Verify ownership with the K-1. This is the only document that will verify percent of ownership in an S Corporation.
Alice owns 50% of the business
So is our W-2 Wage going to be considered Self-employed or salary in this case?
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Tax return Series Form 1120 with K1 Fannie Mae Cash Flow Form 1084
25% or greater ownership indicates that the borrower has to be treated as “Self Employed”. When self employed and using the income you must: • Review the Business Returns • A business Credit Report and P&L may be required (check investor guidelines) • If two years tax returns required, average the Income (only if not declining). • Y-T-D Paystub is required but is not used in the calculation of qualifying income.
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 9
Tax return Series Form 1120 with K1 Let’s Use the Solvency Calculator-
Tax return Series Form 1120 with K1 1120S Review for Solvency/Liquidity
Page 17 The last page of the 1120S Return is a Balance Sheet (Schedule L)
Tax return Series Form 1120 with K1 Balance Sheet Current Ratio and Quick Ratio Current Assets (Cash #1 + Acct Receivable #2 + # 4 + #5+ Current Assets #6 Current Liabilities (Acct Pay. #16 + MNB #17 + Other Current Liabilities #18
Current Assets $2,760 + $0 + $0 + $0 +$0= $2,760
Current Liabilities $0 + $0 + $4,789 = $4,789 .60 - Solvency Page 17
Tax return Series Form 1120 with K1 Did The Business Pass The Liquidity Test?
Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 9
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 9
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 9
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 10
Now you need to review the 1120S…
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 10
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 10
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 10
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 10
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 10
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 10
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 10
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Tax return Series Form 1120 with K1 Income Analysis Form 1084 Section 10
Could we use the full income of $110757 if needed in this case?
Tax return Series Form 1120 with K1 Genworth Underwriting Guidelines
Tax return Series Form 1120 with K1 Genworth Rate Express®
Tax return Series Form 1120 with K1 LOS Connections
Tax return Series Form 1120 with K1 Training Tools and Information
Tax return Series Form 1120 with K1 Training Tools and Information
Tax return Series Form 1120 with K1 47 Additional MI Site Information
Tax return Series Form 1120 with K1 Your Genworth Resources
ActionCenter®: 800 444.5664 Your Local Genworth Regional Underwriter Your Genworth Sales Representative
Tax return Series Form 1120 with K1 Legal Disclaimer
Genworth Mortgage Insurance is happy to provide you with these training materials. While we strive for accuracy, we also know that any discussion of laws and their application to particular facts is subject to individual interpretation, change, and other uncertainties. Our training is not intended as legal advice, and is not a substitute for advice of counsel. You should always check with your own legal advisors for interpretations of legal and compliance principles applicable to your business.
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Tax return Series Form 1120 with K1