Most tax mistakes that people make are also ones that are relatively easy to remedy. These are common issues like not filing on time, filing for a wrong status, making mistakes while filling out a tax form such as math mistakes or spelling errors, or even filing taxes on the wrong form. While these mistakes will give you a headache and you’ll likely have to refile and offer explanations, and perhaps pay a small penalty, they usually are straightforward and quick to resolve. A tax preparer or attorney would easily be able to help you figure out how to handle these tax problems. Less common, but much grimmer are the problems that come with not paying taxes for whatever reason. You want to avoid these if possible, but if you find yourself already past this point, there may still be some help for your tax woes.
How To Handle Four Big Tax Issues
The four major tax issues that will be discussed here are:
Any or all of these can occur if a person or company fails to pay back taxes owed to the state or federal government. They are all very serious and should not be ignored.
How To Handle A Tax Lien Problem
A tax lien is defined by the Internal Revenue Code #6321 as “If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.” Which basically means that the government entity the back tax is owed to asserts control over your real (estate) property or personal property until the tax debt is paid. And you should try to get it paid or otherwise resolved as soon as possible as it can negatively affect your ability to get a loan or other financial services because the government is allowed to post a public notice of a lien. And if you are trying to sell or refinance your home or personal property the liens could also come to light during a title search, and many buyers would be right to be scared away from a sale. The best way to terminate a lien against your property is to simply pay the back taxes owed. If you do not have the money up front to do this, negotiate with the IRS to start a payment plan to pay the tax bill. You can file an appeal if you think you have a case for not paying your taxes, or to buy time, you can declare bankruptcy, which is extreme and can cause more problems than just owing back taxes. You can also try to negotiate with the IRS to take a lesser amount, which isn’t common, but it won’t hurt to ask. But certainly, do something so your lien doesn’t turn into a tax levy.
How To Manage A Tax Levy Issue
While a lien simply is a “claim” on your property to get a tax debt paid, a tax levy is an actual motion to seize your property to pay a tax debt. This doesn’t just happen out of the blue. You will have had notices, including a tax bill for the unpaid taxes, and then a “Final Notice of Intent to Levy and Notice of Your Right to A Hearing”. Thirty days after this notice arrives, the levy against your property can commence. And what can the tax authorities take from you? Levies can be made against your paycheck, your bank accounts, retirement accounts, life insurance accounts, dividends, income from rental properties, actual property can be taken from you to include automobiles, recreational vehicles, boats, and even your home and items inside of your home, like electronics, etc. And if you owe more than 50K, the IRS can request the State Department to revoke your passport. So you absolutely want to avoid tax levies. If one is raised against you, is there anything you can do? Try to set up a payment plan with the tax authority as soon as possible would be the best route to go at this point. If you are really financially struggling and if you qualify, which is rare but possible, you can ask for an offer in compromise, which is an offer for the IRS or state agency to settle for a less amount. It doesn’t happen often, but it’s worth a try. You can also file an appeal for more time to make a decision, which may or may not be granted. If you do none of these, you are then looking at seizures and garnishments by the tax authorities.
How To Handle Tax Issues Like Seizures and Garnishments
If you have not managed your tax debt and back taxes issues, you will find out how the tax authorities handle your tax issues. They take your property. Once you have a tax levy brought against you and the 30-day notice has passed, the authorities can begin to seize your assets. What can be seized? These are items that can be taken to pay your tax debts:
- Personal Property
- Your Home
- Retirement Funds
- Rent From Tenants
- Payments From Clients
- Dividends From Stock Owned
- Bank Accounts
How does this happen? The IRS will freeze your accounts and then the bank must turn over the money in them. If the personal property is at your home, they simply come to your home and tow away the cars, boats, recreational vehicles, etc. If they ask to come in your home, they can take what they want then. If you say no, they will come back with a warrant to enter your home. If you are employed, they can utilize wage garnishments through your employer to take a certain amount from your paycheck before you receive it, which can be up to 25% or more of your wages. The seizures and garnishments will happen until the debt for unpaid taxes is satisfied. How is the best way to handle these particularly bad tax problems? Once it gets to this stage, there isn’t a whole lot you can do, but there are things you can try. To get a release from wage garnishment you need to start by filing your taxes every year on time. As mentioned before, try to pay off your debt in whole. If you can borrow the money or sell an asset to pay them, try to do it. You can again try to negotiate for a lesser payment or ask to set up a payment plan. If you can make an appeal that the wage garnishments are causing extreme financial distress for your family, tax authorities may work with you on a temporary wage garnishment reduction or release. All of this will depend on your situation and the authorities you are working with. How you handle your serious tax problems in the beginning, before it gets too dire will determine how the IRS and state authorities decide to handle your tax debt issues. If you think you may need help to keep the tax problems from getting this serious, ask the advice of your tax advisors or a tax attorney.