Tax time can be a daunting task for personal taxpayers, and especially for small business owners. What’s worse than going through the tedious motions of filing your taxes is getting a letter in the mail saying “you have a tax lien on your assets” or “you’re being levied.”
Let’s discuss the differences between the two and discuss how they have the potential to impact your credit score:
What Is A Tax Lien
A tax lien is a public notification indicating you owe the Internal Revenue Service money. A lien doesn’t serve to take money from you but can put a freeze on your property. For example, if you’re trying to sell your home, you’ll have to resolve your issues (i.e. tax debt) with the IRS before you can sell because the IRS is a current lien holder of your property. The IRS can actually come in and demand the proceeds of the sale to clear your IRS debt.
With businesses, a lien can encumber your assets and make it virtually impossible to sell your business. Buying a business with liens allows other people to have a stake in your business.
What Is A Levy
The IRS uses a tax levy to get your money, assets, and property without your permission. This is when they will seize your assets to get the back taxes owed. They actually seize your assets, unlike a lien which is merely a claim to your assets. More importantly, a levy allows the IRS to garnish your wages or bank account.
However, as a business, a levy notice can also be issued to your customers. The IRS can take your business sales and use them to fulfill your tax liability.
Recent Tax Lien Changes And How They Impact Your Credit Score
A tax lien once caused your credit score to take a dive, but according to an Experian report, “a tax lien or outstanding debt you owe the IRS, no longer appears on your credit report” which means no impact to your credit score. However, there’s a long term impact a levy poses on your credit. For instance, if the IRS takes your entire check, it can result in other bills being paid late which is reported to the credit bureau and stays on your report for 7 years.
A tax lien was once maintained by all three credit bureaus (Equifax, TransUnion, and Experian). However, in 2017, implemented changes to eliminate civil judgment records changed the way a lien is reported and by 2018, all such liens were removed from your credit report. The study found issues with the information being reported correctly.
In fact, once these changes were made, 11% of all customers seen a 30 point increase to their credit score.
Can A Levy Have An Impact To My Credit Score?
Getting your paycheck and finding the IRS has gotten there first can be devastating. However, a levy can’t directly impact your credit score, but it can have an effect on your credit in the long run if you are unable to pay on your current debts.
If the IRS is forced to collect money through a garnishment, it’s not reported to the credit bureau.
Why Addressing Your Lien/Levy ASAP Is Necessary
When you get a tax lien, if you ignore it or neglect to pay the debt, a levy is used to get the taxes owed. In fact, a levy is one of the hardest actions the IRS will take to recover the money you owe.
The IRS sends notice of a levy and it’s made public. A levy gives you a 30-day notice on the IRS’s attempt to levy your assets. If you receive either one of these notices, it’s important to take action right away to avoid more serious tax issues.
Once the government secures your assets through a tax levy, they’ll oftentimes go after your wages or bank account. This usually happens if they haven’t heard from you in time. You can’t afford to ignore a notice from the IRS. Losing your source of income can have a dramatic impact on your other financial obligations. When the IRS seizes these funds, they don’t care if you have to pay your mortgage or car insurance. Waiting to address the issue can only make it worse.
Remember, the IRS doesn’t take action without first giving you a written warning!
Why Hiring Professional Tax Representation Can Help
Professional tax representation can answer all of your questions and concerns about your tax debt and negotiate a settlement with the IRS that can save you thousands of dollars. They’re well-versed with IRS issues and serve to protect their clients. In fact, their goal is to reduce your tax debt. There are a number of strategies they can use to help you achieve the best outcome for your unique tax burden. For example, tax planning can help you settle for far less than what you owe with an “offer in compromise.”
Bottom line: A tax professional has knowledge of tax laws and resources that you don’t have access to. If you’re looking for a fresh start, tax representation serves to return your life to normalcy.
Why Clients Prefer TaxLane
At TaxLane, we represent clients with both federal and state tax matters. We work to resolve your individual and business tax matters with a sense of urgency. We understand how important it is to get back on the path of financial freedom.
Acting quickly, we work to resolve your tax issues with the best outcome for your unique situation. In fact, TaxLane proudly serves clients across the United States.
Lean on a trusted tax professional to mitigate the severe financial repercussions of ignoring or not properly managing your IRS issues by contacting TaxLane to schedule a consultation today!