Calculating Income From 1040, K1 & 1120S (S Corporation)

Calculating Income from 1040, K1 & 1120S(S Corporation)Tax Return Review SeriesDecember 2017Genworth Mortgage Insurance Corporation 2017 Genworth Financial, Inc. All rights reserved.

ObjectiveUnderstand the meaning of “Self Employed” Learn to use Fannie Mae’s Form 1084 to calculate supportableincome using tax returns. We will also include a briefoverview 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 TestTax return Series Form 1120 with K1

Fannie Mae UpdatesSEL 2015-09 – Cash Flow Analysis Form updated– Sections of Chapter B3-3-2 for SelfEmployed Borrowers updated Evidence of liquidity if no distributions madefrom partnerships or S corps– DU updated to allow one year personaland business tax returns for certain casefiles– Changes effective for applications datedFebruary 1, 2016Tax return Series Form 1120 with K1

2016 Fannie Mae UpdatesSEL 2016-05 – Updates to Business Income Eliminate requirement to confirmborrower has access to income Guidance for methods lenders may useto determine adequate business liquiditywhen liquidity assessment is required Verbal verifications of employment for aself-employed borrower can be obtainedwithin 120 days prior to note date– Chapter B3-3-1.07, 09 and B3-3-2 ofthe Selling Guide have been updated– Effective on or before October 1, 2016but lenders and implementimmediatelyTax return Series Form 1120 with K1

S Corporation IncomeTax return Series Form 1120 with K1

Not Using Self Employed IncomeTax return Series Form 1120 with K1

Not Using Self Employed IncomeWhen Do We Have To Tell Loan Product Advisor Our Borrower Is SelfEmployed?Tax return Series Form 1120 with K1

Freddie Mac UpdatesTax return Series Form 1120 with K1

Training Tools and InformationTax return Series Form 1120 with K1

Training Tools and InformationTax return Series Form 1120 with K110

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 FirstimerAlice is a 50% shareholder of an 1120S.Her reported taxable Income is several sourcesas evidenced by her 1040.Our session today will focus only on her 1120SIncome from Smith and FirstimerOther sources may be used to qualify, but oursession will focus for training purposes on thisone business- An S CorporationPage 2Tax return Series Form 1120 with K1

1120S CorporationHK1%Line 21 Ordinary Income Line 1 Ordinary Income Net Income Schedule EPart II1040Line 17 Net Income Sch.E* *Taxed at a personal rateTax return Series Form 1120 with K114

Form 1120S / S-Corp ReturnPage 14Tax return Series Form 1120 with K1

1120S CorporationHK1%Line 21 Ordinary Income Line 1 Ordinary Income Net Income Schedule EPart II1040Line 17 Net Income Sch.E* *Taxed at a personal rateTax return Series Form 1120 with K116

Review the K1Page 12Tax return Series Form 1120 with K1

1120S CorporationHK1%Line 21 Ordinary Income Line 1 Ordinary Income Net Income Schedule EPart II1040Line 17 Net Income Sch.E* *Taxed at a personal rateTax return Series Form 1120 with K118

Review Schedule EPage 8Tax return Series Form 1120 with K1

1120S CorporationHK1%Line 21 Ordinary Income Line 1 Ordinary Income Net Income Schedule EPart II1040Line 17 Net Income Sch.E* *Taxed at a personal rateTax return Series Form 1120 with K120

Form 1040Reports to Line 17Page 2Tax return Series Form 1120 with K1

Let’s Begin!We will use the 1040 to identify theif any wages were reported (line7).Then we will review thecorresponding W2 forms.Page 2Get Out Your Cash Flow Calculator and Case Study And Let’s BeginTax return Series Form 1120 with K1

Fannie Mae Cash Flow Form 1084Are any W2 wages from self-employment?Page 1If yes, determine if the borrower owns 25% or more of the entity thatissued the W2!Tax return Series Form 1120 with K1

Fannie Mae Cash Flow Form 1084Verify ownership with the K-1.This is the only document thatwill verify percent of ownershipin an S Corporation. Alice owns 50% of the business So is our W-2 Wage going to beconsidered Self-employed orsalary in this case? Page 12Tax return Series Form 1120 with K1

Fannie Mae Cash Flow Form 108425% or greater ownership indicates that the borrower has to be treatedas “Self Employed”. When self employed and using the income youmust: 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 qualifyingincome.Page 1Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 9Tax return Series Form 1120 with K1

Let’s Use the Solvency Calculator-Tax return Series Form 1120 with K1

1120S Review for Solvency/LiquidityPage 17The last page of the 1120S Return is a Balance Sheet (Schedule L)Tax return Series Form 1120 with K1

Balance SheetCurrent Ratio and Quick RatioCurrent Assets (Cash #1 Acct Receivable #2 # 4 #5 Current Assets #6Current Liabilities (Acct Pay. #16 MNB #17 Other Current Liabilities #18Current Assets 2,760 0 0 0 0 2,760Current Liabilities 0 0 4,789 4,789Page 17Tax return Series Form 1120 with K1.60 - Solvency

Did The Business Pass The Liquidity Test?Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 9Page 12Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 9Page 12Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 9Page 12Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 10Now you need to review the 1120S Page 14Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 10Page 14Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 10Page 14Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 10Page 14Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 10Page 14Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 10Page 19Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 10Page 17Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 10Page 18Tax return Series Form 1120 with K1

Income Analysis Form 1084 Section 10Could we use the full income of 110757 if needed in this case?Tax return Series Form 1120 with K1

Genworth Underwriting GuidelinesTax return Series Form 1120 with K1

Genworth Rate Express Tax return Series Form 1120 with K1

LOS ConnectionsTax return Series Form 1120 with K1

Training Tools and InformationTax return Series Form 1120 with K1

Training Tools and InformationTax return Series Form 1120 with K147

Additional MI Site InformationTax return Series Form 1120 with K1

Your Genworth Resources ActionCenter : 800 444.5664 Your Local GenworthRegional Underwriter Your Genworth SalesRepresentativeTax return Series Form 1120 with K1

Legal DisclaimerGenworth Mortgage Insurance is happy to provide you with these training materials. While we strive foraccuracy, we also know that any discussion of laws and their application to particular facts is subject toindividual interpretation, change, and other uncertainties. Our training is not intended as legal advice, and isnot a substitute for advice of counsel. You should always check with your own legal advisors forinterpretations of legal and compliance principles applicable to your business. GENWORTH EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES, EXPRESS OR IMPLIED,INCLUDING WITHOUT LIMITATION WARRANTIES OF MERCHANTABILITY AND FITNESS FOR APARTICULAR PURPOSE, WITH RESPECT TO THESE MATERIALS AND THE RELATED TRAINING. INNO EVENT SHALL GENWORTH BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, PUNITIVE, ORCONSEQUENTIAL DAMAGES OF ANY KIND WHATSOEVER WITH RESPECT TO THE TRAINING ANDTHE MATERIALS. Collateral Underwriter , Home Ready and Desktop Underwriter or DU are registered trademarks of Fannie MaeLoan Product Advisor , Home Possible , Home Possible Advantage , Loan Collateral Advisor and Home Value Explorer (HVE ) are registered trademarks ofFreddie MacActionCenter , Homebuyer Privileges and Rate Express are registered trademarks of Genworth Mortgage InsuranceSimply UnderwriteSM is a registered service mark of Genworth Mortgage InsuranceGenworth Mortgage Insurance Offers A Comprehensive Suite Of TrainingOpportunities To Boost Your Know-How, Benefit Your Bottom Line, And Serve YourBorrowers Better. Visit mi.genworth.com To Learn More.Tax return Series Form 1120 with K1

Oct 01, 2016 · Balance Sheet Tax return Series Form 1120 with K1 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 Lia