What Happens If You Can’t Pay Your Taxes?
What happens if you complete your tax return and find that you can’t pay the amount you owe? The IRS will attempt to collect, using measures such as interest charges on unpaid amounts or fines and jail time ( in extreme cases). This isn’t supposed to happen. You’re supposed to pay income taxes gradually throughout the year so that you won’t owe much in April or will even be entitled to a refund of overpaid taxes. Employees have income tax withheld from their paychecks. Self-employed taxpayers pay quarterly estimated taxes directly to the Internal Revenue Service (IRS). But sometimes your life situation changes, or an unusual one-time event occurs during the year. When you prepare your annual return and haven’t paid throughout the year, you may get an ugly surprise—you could owe hundreds or thousands of dollars that you didn’t expect and might not have the money to pay. What Happens If You Don’t File or Don’t Pay If you find yourself in trouble, you do not want to skip filing your tax return or fail to pay your taxes altogether. The government has the authority to forcibly seize your assets if you don’t try to make good on your income tax liability. In the most extreme situations, you may be subject to jail time. Filing Your Taxes Late If you are not going to be able to file your tax return by the deadline, you should file an extension of time by submitting Form 4868 to the IRS by the due date (typically April 15th). It is important to note that filing this form does not give you an extension on the time to pay your tax liability. You’re still expected to send any money you owe by the deadline. If you file your tax return late—or fail to file at all—you will be subject to failure-to-file penalties. These charges accrue on returns that have not been filed by the due date (or extended due date if you’ve filed a Form 4868). The charges accrue at a rate of 5% of the unpaid taxes for each month or part of a month that a tax return is late. The charges max out after five months, at which point the failure-to-file penalty is 25% of the unpaid tax liability. If your return is filed more than 60 days after the due date (or extended due date), the minimum failure-to-file penalty is $450 or 100% of your total tax liability, whichever is smaller. As you can see, filing late does not pay off, with or without an extension. Even if you do not have the funds to pay your outstanding tax liability by the due date, you should still file your tax return, so you don’t incur extra failure-to-file penalties on top of failure-to-pay penalties and interest. The Bottom Line Whatever you do, don’t ignore the problem. The government can forcibly seize your assets if you don’t try to make good on your income tax liability. The IRS can freeze your bank accounts, garnish your wages, seize physical assets, and place a lien on any assets you own, including your home. If you find you can’t pay what you owe, go ahead and file your return and pay what you can. Then work with the IRS, perhaps with the assistance of a tax professional, to formulate a plan for paying the balance of your tax bill over time.
What Is a Tax Return, and How Long Should You Keep It?
What Is a Tax Return? A tax return is a form or form filed with a tax authority that reports income, expenses, and other pertinent tax information. Tax returns allow taxpayers to calculate their tax liability, schedule tax payments, or request refunds for the overpayment of taxes. In most countries, tax returns must be filed annually for an individual or business with reportable income, including wages, interest, dividends, capital gains, or other profits. Understanding Tax Returns In the United States, tax returns are filed with the Internal Revenue Service (IRS) or with the state or local tax collection agency (Massachusetts Department of Revenue, for example) containing information used to calculate taxes. Tax returns are generally prepared using forms prescribed by the IRS or other relevant authorities. In the U.S., individuals use variations of the Internal Revenue System’s Form 1040 to file federal income taxes. Corporations will use Form 1120 and partnerships will use Form 1065 to file their annual returns. A variety of 1099 forms are used to report income from non-employment-related sources. Application for automatic extension of time to file U.S. individual income tax return is through Form 4868. Typically, a tax return begins with the taxpayer providing personal information, which includes their filing status, and dependent information. What Documents Do I Need to Keep for My Tax Returns? For accurate tax filing, it’s crucial to retain various documents such as W-2s, 1099s, and receipts for deductions. These documents serve as evidence of your income, expenses, and eligibility for tax credits. The Sections of a Tax Return In general, tax returns have three major sections where you can report your income, and determine deductions and tax credits for which you are eligible: Income The income section of a tax return lists all sources of income. The most common method of reporting is a W-2 form. Wages, dividends, self-employment income, royalties, and, in many countries, capital gains must also be reported. Deductions Deductions decrease tax liability. Tax deductions vary considerably among jurisdictions, but typical examples include contributions to retirement savings plans, alimony paid, and interest deductions on some loans. For businesses, most expenses directly related to business operations are deductible. Taxpayers may itemize deductions or use the standard deduction for their filing status. Once the subtraction of all deductions is complete, the taxpayer can determine their tax rate on their adjusted gross income (AGI). Tax Credits Tax credits are amounts that offset tax liabilities or the taxes owed. Like deductions, these vary widely among jurisdictions. However, there are often credits attributed to the care of dependent children, individuals aged 65 or older, or those with permanent and total disability. Note that there may be income limitations or restrictions to these credits. After reporting income, deductions, and credits, the end of the return identifies the amount the taxpayer owes in taxes or the amount of tax overpayment. Overpaid taxes may be refunded or rolled into the next tax year. Taxpayers may remit payment as a single sum or schedule tax payments periodically. Similarly, most self-employed individuals may make advance payments every quarter to reduce their tax burden. The Bottom Line A tax return is a document filed with the tax authorities that reports income, expenses, and other relevant financial information to calculate and pay taxes. It is recommended to keep tax returns for at least three to seven years to comply with potential audit requirements and the period of limitations for tax amendments.
5 Tips for Finding the Best Mortgage Lender
1. Get your finances in good shape The credit score required to get a mortgage varies by the type of loan and the lender. With a higher score, you’ll have more choices of loan programs, and you’ll qualify for lower interest rates. Before shopping for lenders, find out your credit score and make sure your credit reports are accurate. NerdWallet offers a free credit score and report, updated weekly, using TransUnion data. You can receive free copies of your reports from each of the three major credit bureaus through the government-mandated AnnualCreditReport.com website. Check the reports carefully and dispute any errors. Next, work on improving your credit. Pay bills on time and work on paying off credit card balances. Lowering your debt will also improve your debt-to-income ratio, or DTI, another key element that lenders evaluate. An ideal DTI ratio for a mortgage is under 36%. Reducing your debt payments will also free up money to save for a home down payment. 2. Learn what kind of mortgage is right for you A variety of home loans are available to satisfy different needs. For example: Home loans also vary by term length, such as 15 or 30 years, and by how the interest rate works. With fixed-rate mortgages, the interest rate stays the same for the entire loan term; with an adjustable-rate mortgage, the interest rate periodically increases or decreases after an initial fixed-rate period. Some lenders offer a broad mix of mortgages; others specialize in certain types. Once you understand the general options, you can seek out the lenders that offer what you need. 3. Compare rates from multiple mortgage lenders Search for the best mortgage rates online from lenders that offer the types of loans you want. Keep in mind that the rate quote you see is an estimate. A lender will have to pull your credit information and process a loan application to provide an accurate rate, which you can then lock in if you’re satisfied with the product. Once you have several quotes from lenders, narrow the list to those with the lowest rates. The total interest you pay over the life of the loan is a big figure, and a lower rate can save you thousands of dollars. 4. Get preapproved Apply for mortgage preapproval with more than one lender before you start shopping for a home. A mortgage preapproval letter shows sellers and real estate agents that you’re a serious buyer. It’s evidence that a lender has evaluated your finances and figured out how much you can afford to borrow. Getting preapproved now will also save time later. When you’re ready to make an offer on a home, lenders will have the information they need to process your home loan. To get pre-approved, you’ll have to provide information about your income, debts, and assets. Lenders typically require: 5. Compare loan estimates and choose the best deal A loan estimate is a document a lender must provide after you’ve applied for a loan and have provided certain information, including the address of the property you want to buy. The document will spell out important details about your loan, including the interest rate, monthly payment, fees, and estimated closing costs. Compare loan estimates from at least three lenders. Read each line to make sure the details match what you expected, and ask questions about anything you don’t understand. Then, carefully compare costs and terms to choose the best deal for you.
Home Warranty vs. Home Insurance: What are the Differences?
If you own a house or plan to buy one, you may wonder what the difference is between a home warranty and home insurance. After all, both safeguard your investment—and your pocketbook—if something goes wrong. Still, home warranties and home insurance policies offer distinct types of protection. Knowing what each one covers can help you decide if you need both. What Is a Home Warranty? A home warranty is a service contract that helps pay for repairs and replacements of covered household appliances and home systems. In exchange for a monthly or annual fee, you get a flat rate on service calls. If an appliance or system covered by your plan breaks down, your home warranty company sends out a technician to diagnose and fix the problem—and you pay just the service call fee. Of course, these plans have coverage limits: A contract may cover up to, say, $1,500 per year for each eligible appliance, with an annual claim limit of $15,000. If you receive a home warranty as part of a real estate transaction, the coverage usually starts as soon as you close on the home. However, if you buy a warranty for a house you already own, you may have to wait 15 to 30 days before the coverage takes effect. What Does a Home Warranty Cover? Home warranties cover appliances and systems in both new and pre-owned homes. Most home warranty companies offer three types of plans: 1.Appliance Plans (e.g., washer/dryer, dishwasher, and refrigerator) 2.System Plans (e.g., HVAC, plumbing, and electrical systems) 3.Combination Plan (everything included in the appliance and system plans) Most companies let you add coverage (for an extra fee) for specific items that are excluded from the standard plans. Common “add-ons” include pools, spas, septic systems, wells, lawn sprinkler systems, and additional appliances (e.g., a second dishwasher or air conditioner). How Much Does a Home Warranty Cost? Home warranty costs are based on two fees: 1. A monthly or annual fee. This is what you pay to access the discounted service calls. Depending on where you live and the plan you buy, you might pay anywhere from $350 to more than $1,100 per year. 2. A service fee. This is the amount you pay each time you request repairs for a covered appliance or system. Most companies offer several service fee “levels,” which might range from about $55 to $150 per service call. In general, the lower the service fee, the higher your monthly or annual fee will be, and vice versa. What Is Homeowners Insurance? Home insurance (aka homeowners insurance) is a type of property insurance that protects against losses and damages caused by covered perils. According to the Insurance Information Institute (III), a standard homeowners insurance policy includes four essential types of coverage: 1. Coverage for the structure of the home: This pays to repair or rebuild the house if it’s damaged or destroyed by a covered peril. Most policies cover other structures on the property, too, such as garages, tool sheds, decks, and gazebos. 2. Coverage for personal belongings: This covers your furniture, clothes, sports equipment, and other personal belongings if they are stolen or destroyed by a covered peril. If you have expensive items, you may need a special personal property endorsement or a floater to ensure you’re adequately protected. 3. Liability protection: Liability coverage protects against lawsuits for injuries and property damage that policyholders, their family members, and their pets cause to other people. 4. Additional living expenses: This pays for hotels, meals, and other living expenses if your house is uninhabitable due to a covered peril. What Does Homeowners Insurance Cover? The most popular home insurance policy is the HO-3, which covers your home, belongings, and liability. According to the III, HO-3 policies provide broad coverage and protect against 16 disasters and perils: 1. Fire or lightning 2. Windstorm or hail 3. Explosion 4. Riot or civil commotion 5. Damage caused by aircraft 6. Damage caused by vehicles 7. Smoke 8. Vandalism or malicious mischief 9. Theft 10. Volcanic eruption 11. Falling object 12. Weight of ice, snow, or sleet 13. Accidental discharge or overflow of water or steam from a plumbing, heating air conditioning, or automatic fire-protective sprinkler system, or from a household appliance 14. Sudden and accidental tearing apart, cracking, burning, or bulging of a steam or hot water heating system, an air conditioner, or an automatic fire-protective system 15. Freezing of a plumbing, HVAC, or automatic fire-protective sprinkler system, or of a household appliance 16. Sudden and accidental damage from an artificially generated electrical current Homeowners insurance also covers your personal liability for injuries to other people (those who don’t live with you) and their property while they are on your property. The most common liability claims involve dog bites, home accidents, falling trees, intoxicated guests, and injured domestic workers. Standard home insurance policies don’t cover damage or losses caused by floods (whether natural or human-related) and earthquakes. Depending on where you live, it may be a good idea to add—or buy a separate policy for—flood or earthquake coverage. Ask your insurance agent if either is recommended in your area. How Much Does Home Insurance Cost? Your home insurance premium will depend on numerous factors: Where you live Your home’s rebuilding costs The value of your personal belongings Your home’s size, features, and condition The deductible and coverage limits you choose Your history of home insurance claims Your marital status and credit score Home warranties help cover costs when an appliance or major household system breaks down. Home insurance, on the other hand, covers your home and personal belongings against theft and other perils, and provides personal liability coverage, too. If you have a mortgage, your lender may require a home insurance policy. Of course, even if it’s not required, it makes financial sense to protect your investment with a good insurance policy. While home warranties are optional, they can provide an extra layer of protection and added peace of mind. They may make
Guide to Homeowners Insurance Coverage in 2024
Homeowners insurance typically covers a range of situations and damages to your home and personal property. Here’s a general guide to what homeowners insurance typically covers: It’s important to note that homeowners insurance policies may vary in terms of coverage limits, exclusions, and optional endorsements. Some events, such as floods and earthquakes, are typically not covered by standard homeowners insurance and require separate policies. Additionally, certain types of damage, such as wear and tear or neglect, are usually not covered. When shopping for homeowners insurance, it’s essential to carefully review the policy details, understand what’s covered and what’s not, and consider any additional coverage options you may need based on your location and circumstances. Link: https://www.nerdwallet.com/article/insurance/understanding-homeowners-insurance?trk_channel=web&trk_copy=What%20Does%20Homeowners%20Insurance%20Cover%3F%202024%20Guide&trk_element=hyperlink&trk_elementPosition=0&trk_location=PostList&trk_subLocation=tiles
How a Mortgage Broker Can Help You Find the Right Loan
I want you to imagine this situation: You’re in the market for a new laptop and decide to visit an HP store. You meet a sales representative named Ben who’s there to assist you. Ben starts by asking you a series of questions to understand your needs, budget, preferred weight, and other requirements. His goal is to find the perfect laptop for you within the HP product lineup. Ben goes above and beyond to provide you with exceptional service and manages to secure the best deal available on an HP laptop. However, here’s the catch: Ben’s knowledge and recommendations are limited to HP products. He might not be aware that a Sony laptop or a Mac could potentially be a better fit for your specific needs. Why? Well, if he were to mention other brands, he could risk losing his job. Now, imagine you’re applying for a loan from a lender, and you’re looking for the best possible option. The employee at the bank will present you with different choices, but you’re restricted to selecting from the options they provide. This is where a good mortgage broker can step in. A broker acts as an intermediary, listening to your requirements and searching through a range of options from various lenders. Unlike a sales representative who represents a single company, a broker has access to multiple lenders and can provide you with a wider array of choices. They prioritize finding the best solution for you, regardless of the brand, and allow you to make an informed decision based on your unique situation. In this article, let’s dive into the wonderful world of mortgage brokers and how they can make your life easier when it comes to navigating the loan market. Mortgage broker have an extensive network of lenders at their fingertips Unlike bank loan officers who work for a single institution, brokers can access numerous lenders such as banks, credit unions, and alternative lenders. This means they can compare multiple loan options for you based on your financial circumstances. They’ll present you with a range of solutions tailored to your needs. They can provide you with a tailored loan solution Everyone’s situation is different, right? Well, a good mortgage broker understands that. They’ll take the time to understand your specific needs, financial goals, and preferences before recommending loan options. With their expertise and industry knowledge, they can connect you with lenders who are more likely to approve your loan and offer competitive terms that suit you. Mortgage broker can help you streamline the application process Now, let’s talk about the dreaded mortgage application process. It can be a real hassle, but fear not! A mortgage broker can simplify it for you. They’ll help you complete the necessary paperwork, gather all the required documentation, and organize your application. They’ll be your go-to person, handling communication with the lenders and addressing any concerns or questions that pop up. That means you save valuable time and effort. They have access to specialized loans Sometimes, you may find yourself in unique circumstances that require specialized loan products. Whether you’re self-employed, a first-time homebuyer, or have less-than-perfect credit, mortgage brokers have got your back. They know the lending market inside out and can connect you with lenders who offer specialized loan programs tailored to your specific situation. They’ll guide you through the eligibility criteria, documentation requirements, and other considerations, so you’re well-informed. Mortgage broker have knowledge of changing policies Ah, the ever-changing world of lending policies. It’s hard to keep up, right? Don’t worry! Reputable mortgage brokers stay on top of these changes. They’ll keep you informed about any shifts in lender policies and lending regulations. They’ll explain how these changes may impact your loan application and offer alternative solutions to ensure a smooth borrowing experience. Knowledge is power, after all! Before you commit to a loan, it’s essential to understand the whole package and its terms. And that’s where your trusty mortgage broker comes in. They’ll help you evaluate the loan options presented to you. They’ll explain the differences between them, including interest rates, repayment terms, fees, and any potential hidden costs. With their expertise, you can make an informed decision that aligns with your financial goals and long-term affordability. No surprises, just clarity. To wrap it up, in today’s stricter lending environment, having a mortgage broker by your side is like having a superhero in your corner. They’ll connect you with multiple lenders, offer personalized loan recommendations, streamline the application process, and provide ongoing support. By partnering with a knowledgeable mortgage broker, you’ll gain access to their expertise, industry insights, and resources. That way, you’ll increase your chances of finding the right loan to fulfill your homeownership dreams. Remember, the journey to owning a home doesn’t have to be a bumpy ride. Let a mortgage broker smooth out the path for you. Here at Simply Wealth Group, we’re all about helping you through every step of owning your dream home. We’re here to make the process as smooth and easy as possible. Check this out for the reason why you should select us as your partner in this journey of acquiring a new home.
What if I Can’t Find a Tenant Once my Property is Completed?
When it comes to property investing, finding a tenant for your completed property is crucial to start generating rental income. However, if you’re facing difficulties in securing a tenant, there are typically two main reasons behind it. First, setting the rent too high for the current market climate. Second, having a property that is not in a livable state. By addressing these issues and adopting practical solutions, you can increase the chances of finding a tenant and maximizing your property investment. The first step is to evaluate your rental price. In a competitive market, setting the rent too high may deter potential tenants. Research the current market rates in your area and adjust your rent accordingly to attract tenants who are willing to pay a fair price for the property. Another factor to consider is the livability of your property. Ensure that it is in good condition and ready for occupancy. Make necessary repairs, improve the overall appeal, and enhance the property’s amenities to attract potential tenants. If you’re still struggling to find a tenant, explore alternative strategies. For instance, if there are already numerous affordable rental properties available in your area, simply reducing the rent may not be enough. Consider offering a furnished apartment to stand out from the competition and attract tenants looking for convenience and ready-to-move-in options. Additionally, invest in property advertising to increase its visibility. Work with a reliable property manager who can implement effective marketing strategies. Utilize online platforms, local publications, and other advertising channels to promote your property to a wider tenant base. The more prominent and extensive your property’s ads, the higher the chances of attracting potential tenants. By addressing rent pricing, improving livability, and adopting targeted advertising, you can overcome the challenge of finding a tenant for your completed property. Remember, with careful planning and strategic approaches, you can enhance your property investment and start reaping the rewards of rental income.
How Has the Fixed-Vs.-Variable Debate Changed With Rising Rates?
How Has the Fixed-Vs.-Variable Debate Changed With Rising Rates? Thanks to the new stress test introduced by the Office of the Superintendent of Financial Institutions (OSFI) last year, borrowers who prefer the security of a fixed rate are now having to contend with an elevated qualification baseline. That change, which came into effect in June 2021, saw borrowers required to qualify at either 5.25%, or 2% over the contract rate – whichever is higher – with rising fixed rates now, meaning the latter is the more common qualifying criteria. According to RATESDOTCA expert and licensed mortgage agent, Sung Lee, the said change had a direct impact on the mortgage amount that many borrowers can qualify for. He also added the fact that the spread between variable and fixed rates remains considerable only means that various options are more likely the preferred choice of many mortgage clients for the foreseeable future. “It’s important for consumers to really re-evaluate their budget to see if they can weather it. If not, it does make sense to consider converting to a fixed rate, so that they can put a cap on what that payment’s going to be.” – Sung Lee. Don’t hesitate to get in touch with us for clarification, or further advice, regarding any of the topics covered in this newsletter.
Building Costs Blow-Outs: How Brokers Can Help
Discover how brokers play a crucial role in mitigating the challenges of rising building costs for clients involved in property construction. As the industry faces ongoing supply chain issues, brokers provide essential assistance to ensure successful outcomes and guide clients through the process. Rising Costs and Supply Chain Issues Many Australians who have signed fixed-price building contracts are encountering price increases as a result of supply chain disruptions. Brokers are witnessing this common problem and stepping in to offer support and solutions. Assisting Clients Brokers, according to Sphere Loans Director Mirasol San Esteba, are actively filling gaps to help clients overcome these challenges. On one hand, the first option is for clients to raise additional funds themselves. On the other hand, brokers are ready to facilitate contract variations if necessary. Importance of Engaging a Broker Engaging with a knowledgeable broker becomes crucial for individuals planning to build a new home. Brokers play an essential role in educating clients about potential issues and ensuring effective communication throughout the construction process. Their expertise and guidance can lead to successful outcomes. Conclusion In the realm of property investment, brokers are instrumental in navigating the rising costs and supply chain issues faced by clients involved in property construction. By fostering open communication and providing valuable assistance, brokers help mitigate challenges and contribute to successful property investment journeys. Please get in touch with us for clarification, or further advice, regarding any of the topics covered in this newsletter.
How Important is Your Credit Score?
A recent survey of nearly 1,600 people revealed almost all respondents believed knowing their credit score was critical to improving their finances. To simply define, a credit score is a number that depicts a consumer’s creditworthiness. The higher the score, the better a borrower looks to potential lenders. According to the recent survey conducted by Digital lender SocietyOne, it concluded 97.7% of respondents thought it was important for Australians to know their credit score; 93.3% said they found it useful to have finally learned their score through SocietyOne, and those who wished to improve their credit score and overall finances embodies 73.5%. However, only 32.8% of respondents knew their credit score before being encouraged to check it and 60.9% were surprised by the result once they received their score. MoneyMe Chief Operations Officer, Jonathan Chan stated that “a credit score is an excellent indicator of financial health and many Australians appear to understand its importance. However, half of all Australians still have not applied for their score to know where they stand when applying for credit for a loan and finding out your score is only the first step”. In addition, Experian General Manager of Credit Services, Tristian Taylor reminded them not to “forget that a credit score is simply a view of your financial health and the way you work with credit. Keeping on top of your repayments and choosing the right financial products for your situation are important factors in maintaining a strong credit score.” Key factors that could influence the status of your credit score include: The type of lender you have applied to How well you’ve kept up with your repayments The credit limit of each of your credit products The type of product you have applied for The number of credit applications you make Any negative events, such as defaults, judgments, or bankruptcies. Please contact us for clarification, or further advice, regarding any of the topics covered in this newsletter.
