When you’re applying for a mortgage, auto or business loan, you’ll be asked for a variety of documents to prove your income. The lenders will typically ask for your credit history, information on your debt, recent paystubs, legal documents like divorce decrees and your tax information. It’s important to understand the difference between your federal tax return and your tax transcript.
Knowing The Difference Between Your Tax Return And Tax Transcript
You should already be familiar with tax returns. Each year, you file a tax return to determine whether you owe taxes to the government, or if the Internal Revenue Service must submit a refund to you. It’s a process that every working person in the United States goes through. The information on a tax return is detailed. It shows your income, deductions and tax credits. There are sometimes additional forms that need to be filled out in conjunction with your tax return for certain deductions. While your tax return contains valuable information for lenders, it’s not always easy to get a clear picture of your income.
A basic tax transcript clearly shows your line items such as your adjusted gross income. Something to note is that if you make a mistake on your tax filing and have to adjust it, the original tax transcript will not show any update to your taxes. You can request a tax account transcript that shows your income information plus your marital status, return type, and taxable income. There is also a combination of both of these tax transcripts available called a record of transcript.