This is your year. Everything’s falling into place: you started dating a wonderful woman, you landed a great new independent contractor job, you got a considerable pay raise and you treated yourself to a new car. Now you’ve decided to take the plunge: you’re saying good-bye to renting, and you’re going to buy a house.
There’s just one hiccup in your plan: you didn’t fully realize the implications of your new self-employed status – and you didn’t set aside enough money to pay your contribution to Social Security and Medicare taxes. After doing some initial calculations on this year’s tax return, you realize you owe $10,000 that you don’t have.
Options for when you didn’t plan ahead for taxes
Fortunately, you discovered you don’t have to come up with the money all at once. You spoke with a tax attorney and learned that you can set up a payment plan with the IRS to pay back the taxes you owe in installments.
But how does this affect your ability to buy a home this year? Will the back taxes you owe negatively impact your credit score? Is it a race against the clock to close on a new home before Tax Day?
More good news
If you set up an installment agreement with the IRS to pay off your taxes, this will have no impact on your credit score. However, if you default on this agreement, and the IRS issues a tax levy or lien against you, this will have an effect on your credit score.
In other words, you can view your situation as a second chance. You can pay off your taxes and you can still buy your house this year. You just have to be careful to stay on top of your payments moving forward – otherwise you could wind up in trouble.