How to Avoid a Tax Lien

How to Avoid a Tax Lien
How to Avoid a Tax Lien

The federal and state tax authorities want you to pay your tax on time, and if you do not, there are several courses of action open to them. Regardless of the type of tax you owe, they just want you to pay it when it is due. To your surprise, taxes for Americans living abroad, are also considered the same way. No one likes having to pay a tax bill, but if you have gained income, then some may be due. The government need tax to be able to provide the funds to run the country, so they will always come down heavily on people that do not pay. At the worst, they will issue a tax lien, but these can be avoided if you follow the right procedures.

What is a Tax Lien?

A tax lien gives the government a legal right to your property. This could be your residence or other assets that you own. It means that the item the lien is against cannot legally be sold without the tax debt being paid from the proceeds. The only way to have your assets freed from this is to pay the tax that is due.

Pay the Tax When it’s Due

Of course, the easiest way to avoid a state tax lien is to pay your taxes as and when they are due. This will prevent any fines or penalties being issued and will stop you having to pay interest on top of the amount that you owe. If you are unable to make the payment, you should contact the IRS and reach an agreement to pay over time. As long as you stick to what is agreed, they should not take any further action. What upsets them is when people just ignore the fact that tax is owed.

Don’t Ignore a Notice and Demand for Payment

If your tax is late, the first thing you will receive is a Notice and Demand for Payment. You should not ignore this as it is a precursor to worse action being taken. You will usually be given about a month after the issue of the notice to either clear the debt or come to some arrangement to do so, but some states start action after just a few days. A tax lien is a last resort for the IRS to use against non-compliant taxpayers, but if you keep ignoring their correspondence, it is more likely to happen.

Keep a Clean Record

Your tax affairs are between you and the IRS until a tax lien is issued. These are a matter of public record and can only be removed by the IRS, which usually they will only do if the tax has been paid. A note of the tax lien usually stays on your credit record for up to 10 years, so it is important to let credit agencies know if you have settled the debt so they can show this on your records.

Putting the Government First

A tax lien puts the government ahead of any other creditors you may have, and this can stop you from being able to get a mortgage or credit of any other sort. If you want to be able to buy a home or a new vehicle in the future, it is best to take the necessary steps to avoid a tax lien.