Buying a home involves a lot of big decisions. Ideally, one you’ve made is to proceed with a pre-approved loan. When you have approached lenders you’ve already jumped through a few hurdles to understand what type of home you can afford.
The loan approval process can be complicated, though, when you owe back taxes. Having unpaid taxes won’t always keep you from being approved for a mortgage, but it does make things more difficult.
Therefore for best results, i.e. fast and successful mortgage pre-approval, do your homework and take the proper steps to get your tax debt in order before you begin the often-complex mortgage application process.
Find Out What You Owe
You need to know precisely how significant your tax debt is before you can make a plan to tackle the problem and start working on a payment solution.
Depending on your location, there are online resources to assist you. For example in the USA, the Internal Revenue Service has tools available to help you view your tax account so you’ll know how much you owe. Or, if you’re in the UK, you can go to HM Revenue and Customs site. Avoiding your tax obligations won’t make it go away.
If you know you’re going to owe taxes and can’t pay, be sure to file anyway because there are penalties for failure to file as well as for failure to pay.
Don’t miss the deadline, as this will add to your fees. Request an extension if needed, but know that late-payment penalties will still apply.
Consider Your Options
There are always payment options and extensions. For example, in the USA, if you need more than 120 days to pay your taxes in full, the IRS offers three options:
- installment agreements
- delayed repayments
- offer in compromise i.e. (settling for less than what you owe)
These plans have stipulations and drawbacks, including penalties and fees, so do your research before choosing.
These options are for individuals; find out what to do if your business owes back taxes.
Tax debts can be paid with a credit card, but beware of cards with high interest rates as the IRS options are often lower.
Get Help From a Tax Professional
In most countries, if you’re self employed it’s not surprising if you end up owing taxes.
So many individuals and businesses owe back taxes, and often it’s due to the complexity of tax requirements. For example, in the USA, the United States tax code has statutes that make up Title 26 of the U.S. Code fill 2,652 pages — that doesn’t even count IRS regulations (about 9,000 more pages).
If you find yourself in a predicament of owing tax, you can make gains by engaging a CPA or other tax professional.
The tax experts best decipher tax laws, so before you start your mortgage pre-approval process to buy a home, first use a qualified accountant to help you navigate the best solution for your unique tax-debt issues.
Avoid Owing To Begin With
The easiest way to deal with tax debt is to make sure you won’t owe the IRS in the first place. Use a W-2 calculator to adjust your withholdings so you won’t end up with a bill at the end of the year. While getting a big refund check can be beneficial, some financial planning experts advise against withholding too much. Do your research and play with the calculator to find the best approach for your financial situation.
Like applying for a mortgage, taxes can be stressful and complicated. Unfortunately, taxes are unavoidable, and you need knowledge and a solid plan o if you plan to buy a house and have a tax dean. Don’t be afraid to ask for help from a professional, and don’t avoid the problem or delay taking action. There are ways to solve your tax-debt problem.