Finding out that you have unresolved tax debt can be frustrating and, given the oftentimes large amounts owed, frightening. When you’re notified of outstanding debt, you might be tempted to shrug it off to deal with later, especially since dealing with the IRS isn’t an everyday exercise that you know how to confidently navigate. But you can’t delay in figuring out how to handle your tax debt obligation. If you do, then you could wind up facing significant penalties.
What’s at stake if you don’t timely resolve your tax debt?
There are several bad outcomes that can result from unaddressed tax debt. Let’s look at some of them here. That way you’ll have a better understanding of what’s at stake in your case and why it’s important to act now to protect your interests. Here are some common problems that those with tax debt face:
- Your refunds will be taken: If you owe back taxes, then the IRS will seize any future refunds to which you’d otherwise be entitled. This can be problematic if you rely upon those refunds to help secure financial stability.
- The IRS will automatically draw money from your bank account: Failing to deal with tax debt can lead to automated collection, where the IRS can levy your bank account. This allows them to automatically withdraw a certain amount of funds from your bank account to satisfy your debt. This probably isn’t an expected expense, so you can be suddenly thrust into financial difficulty if automated collection occurs.
- You’ll be hit with significant penalties: The IRS is probably going to charge interest penalties on any unpaid tax debt. Depending on the amount of back taxes that you owe, this can quickly balloon your balance, making it even harder for you to get above water.
- The IRS could place a lien on your property: If you fail to pay your tax debt after receiving notice to do so, the IRS could place a lien on your property. This will make it hard for you to use that property to secure collateral. Since this information is publicly available, it could damage your reputation.
- The IRS can levy your assets: The IRS even has the power to seize your assets to satisfy your tax obligation. Although the IRS theoretically could take your home, vehicles and other items of personal property to satisfy your debt, the chances of that happening are relatively small. If you owe back taxes, it’s much more likely that the IRS will garnish your wages, take money from your business’s accounts receivable or directly withdraw money from your bank account.
- Your passport can be restricted: The IRS can work with the State Department to restrict your passport if you owe a significant amount of back taxes and you haven’t been working with the government to pay it off. This can limit your ability to travel, which could impact work travel and travel to visit family and friends.
Develop a plan to resolve your tax debt before being hit with serious penalties
These are only a few of the issues that you could face if you have lingering tax debt. If the government thinks that you’ve committed tax fraud, then even harsher penalties, like jail time, may be on the line. That’s why it’s best to work with the IRS right away to figure out the best way to resolve your tax obligation. Although the thought of paying off a large tax debt can be daunting and stressful, there are legal strategies you can utilize to get out from under the pressure you’re feeling, pay off your tax debt and reclaim your life.
