Why service industry professionals should show more on paper than in their pocket
It is no secret that a good bartender can make $500 a night slinging drinks. In South Florida, where the hospitality industry thrives, there is no shortage of people who make a great living from being a service industry professional. Cash is king in nightclubs. Not claiming some of that cash will have you living like a peasant.
You are a VIP bottle server in one of Miami’s hottest clubs. You can make a couple thousand dollars in a few nights work. After renting for a couple years, you get the itch to buy a house. Of course you can afford a mortgage payment! You can make that in one good night! Your trusted realtor finds you the perfect house and you don’t sweat the down payment and monthly mortgage payments. You can afford it, right?….WRONG!
The mortgage lender crushed your dreams because you “don’t make enough on paper.” Splurging on that fancy handbag instead of paying it forward to Uncle Sam, has come to bite you in the you-know- what.
When applying for a mortgage, they are going to look at last two years of tax returns to calculate a debt to income ratio. If you are not claiming those hard-earned cash tips, your tax returns are going to reflect a low income. So it doesn’t matter how much you have in your pockets, it’s all about how much you have on paper.
Before starting the home hunt, contact a licensed mortgage lender. They will be able to let a person know if they qualify before they start picking out furniture on that dream home. Turning to a licensed accountant to guidance on what you should be claiming for your upcoming tax returns is also highly recommended.