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3 More Steps from Taxable Income to Cashflow: NEW

In previous posts I covered the three N’s that get us from taxable income to HISTORICAL cashflow:

  1. Nontaxed income
  2. Nondeducted expenses
  3. Noncash income or expenses

If you want to go the rest of the distance to RECURRING cashflow, there are three more:

  1. New
  2. Nonrecurring
  3. Nondocumented

Let’s start with NEW.
No matter the time of year, the tax returns are old. Sometimes very old. With the ability for 1040 filers to delay filing until October of the following year, you can be looking at a tax return that is over 1 1/2 years old! And that means if you are reviewing three year’s returns, the oldest is almost five years back!

That is why we also ask for and review year-to-date financial statements and the application. Look for significant income sources or expenses that are NEW since the tax return date. Here is a short list of possibles:

  •  New rental properties
  •  Alimony or child support received
  •  New contract receivable
  •  New job at a significantly different wage amount
  •  New business source of income…contracts or revenue streams


  •  New expenses due to expansion
  •  Increased lease expense
  •  Alimony or child support to pay
  •  New loan payments

Compare the information on year-to-date financials and the borrower’s application to see if there is something you need to add to your figures.

About the Author
Linda Keith CPA is an expert in credit risk readiness and credit analysis. She trains banks and credit unions throughout the United States, both in-house and in open-enrollment sessions, on Tax Return and Financial Statement Analysis. She is in the trenches with lenders, analysts and underwriters helping them say "yes" to good loans. Creator of the Tax Return Analysis Virtual Classroom at, she speaks at banking associations on risk management, lending and director finance topics.