January 18, 2010
Share Holder Loans As Income
Posted in BNI, business, CAAMP, CMHC, customer service, interest rates, mortgage, real estate, referral, referrals, refferal, social media, success, Twitter, Uncategorized tagged 140 characters, brand, brokerage, business, client, cost of doing business, holder, home, investment property, Investors Group, Kaerus, loans, luxury, mortgage, networking, opportunity, partner, Professionals, relationships, rent, sales, share, share holder loans, social media, stated income, success, taxes, value, vision at 11:23 am by kaerusgrp
Often I am asked what is the hardest part of financing property for self-employed people and the answer is always the same…proving their income. This holds especially true when it comes to those that have established themselves as a corporation.
Quite often when a person establishes themselves as incorporated, they see the benefits of being able to cut their taxes paid via the method of taking “share holder loans”. They would do this rather than paying themselves a salary or hourly wage and declaring taxes on those funds earned.
This is a great way to avoid paying higher taxes, however can be extremely harmful to your dreams of buying a home or investment property. The reason this becomes such a detriment is because now, that income earned no longer looks like income, rather a debt that now needs to be paid back, hence, share holder LOAN.
For those individuals that have taken this route, they are now in a place where they need save a much larger down payment than they would have had to as someone who declares all of their income. That self employed person now has to save 20-30% (depending on country of origin) in order to qualify for a “stated income” product. If they had just declared their income and paid the taxes that go with it, they could then qualify for a mortgage with a much lower down payment.
Moral of the story, before you make the step of incorporating to save on taxes, please…PLEASE check your motives and look at where you want to be in 5 years…if owning a home is in the picture you may want to consider declaring a little more income.
