A tax lien can be understood as a legal claim against the assets of an individual or a business recalcitrant towards tax payment to the government. The simple nuts and bolts of it paint a clear picture: if you owe the government taxes and fail to pay, they have the right to claim your assets to ensure their debt is paid. In this article, we will answer: how does a tax lien affect individuals and their financial situation?
Implications of a Tax Lien on Your Financial Situation
Understanding the implications of a tax lien on your financial situation is crucial to grasping its severity and potential drawbacks. Here are some primary effects you would observe on your financial life:
- Impact on Property Sale or Refinancing: The presence of a tax lien often imposes restrictions on the possibility of selling or refinancing any property you own. Because a tax lien is attached to all your property (real estate, financial assets, personal property), any attempt to sell or refinance these assets may prove to be more difficult. Essentially, the lien ensures the government gets its dues first and can deter prospective buyers or financial institutions from dealing with your property.
- Challenges with Securing New Lines of Credit: Although as of 2018, the three big credit reporting agencies have agreed not to include tax liens on credit reports, they are still a matter of public record. This means prospective lenders or creditors may still gain access to these records. As a result, if a tax lien is in place, it could substantially lower your chances of securing new loans or lines of credit, thereby limiting your borrowing capacity.
- Persistence of Tax Debt Post-Bankruptcy: To add to the existing challenges, tax liens, and tax debts have a troubling persistence. In scenarios where an individual files bankruptcy in the hope of getting a clean financial slate, federal tax debts mostly continue to persist beyond the bankruptcy proceedings.
Given these implications, it’s of the essence that tax liens are addressed swiftly to curtail the extent of their impact on your financial life.
Strategies for Resolving a Tax Lien
While a tax lien might cast a gloomy shadow over one’s financial life, there are several remedial paths you can undertake:
- Pay the Tax Debt in Full: Naturally, full debt payment cements itself as a surefire way to clear the impediment of a tax lien. Once the entire amount has been paid, the IRS would typically remove the lien within 30 days.
- Set up an Installment Agreement: For taxpayers who cannot shell out the entire amount immediately, the IRS often agrees to set up a monthly installment plan until the tax debt is fully offset.
- Federal Tax Lien Disputes: If you firmly believe a tax lien has been erroneously placed against you, you can raise a dispute over it. Be prepared with substantial evidence and documents.
For all the complexity a tax lien brings with it, professional assistance like Creative Tax Solutions can help you navigate the rough waters. With a seasoned team of experts, like Thomas Patti, Marla Klein, Adam Hastie, and Don Murry, we understand the finer points of tax laws and how best to deal with them.
Over a span of several years, Creative Tax Solutions has assisted over 20,000 clients. As part of our modus operandi, they offer transparent and free consultations, committed to providing astute advice and feasible payment solutions. By enlisting our help, you gain the leverage of solid professional assistance that aims to reduce the stressful overtones of dealing with a tax lien.