Millions of Americans currently owe billions of dollars to the IRS in back taxes. While some are on payment plans to pay this debt off, others ignore it. Unfortunately, ignoring your delinquent tax liability is one of the worst decisions you can make. If you need a little motivation to see a tax specialist, consider the eight ways ignoring back taxes can ruin your life.
How Ignoring Back Taxes Can Ruin Your Life
The IRS has several methods of communication up its sleeve. First, the IRS will usually try to contact you by sending a letter, known as a notice, via the U.S. Postal Service. If that doesn’t work, the IRS will attempt to make contact via phone. One of the last steps the IRS will take to try to get your attention is sending an IRS agent to your home or place of business.
But to what lengths will the IRS go if you ignore endless letters and in-person visits to your home or workplace? Depending on how much money you owe and how long you’ve owed it, you may rack up serious interest and penalties, have your wages garnished, and much worse.
1. Accrual of Interest and Penalties
You’ve ignored the phone calls. The IRS agent coming to your home couldn’t make you pay your delinquent tax bill. The next thing the IRS will try to do to get your attention is hit you with interest and penalties.
2. Wage Garnishment
One of the most common reasons for back taxes is a taxpayer’s inability to pay. However, the IRS expects you to be able to live off a quarter of your net paycheck. One of the ways a delinquent tax liability can ruin your life is that the IRS is allowed to garnish up to 75% of your net wages.
The scary thing about this is the IRS is the only creditor who does not have to take you to court to get judicial permission to garnish your paycheck. If you ignore your back taxes long enough, they will come after your wages with no regard for how much take-home pay you need to support your family.
3. Bank Levies
Living on a quarter of your net pay is hard enough. But could you and your family survive if you were living off a quarter of your net income, and the money in your bank accounts also disappeared? That is the hard reality you may have to face if you ignore your delinquent taxes. If you ignore the final notice from the IRS indicating you have 30 days to create an arrangement to pay, the IRS will send an order to your bank to freeze your funds for 21 days.
During this time, your rent or mortgage will not be drafted out of the account. You will have to make other arrangements with your internet and cable provider, local electric and gas company, and water and sewer provider. You will not be able to withdraw any money from your bank account. Do not let things get to this point. If you owe the IRS money, contact a certified tax specialist today.
4. Property Lien
If you owe back taxes, there’s a good chance you can forget about taking out a HELOC to pay for home improvements. One of the actions the IRS can take to collect your delinquent taxes is to put a lien on your home. This means the IRS has legal claim to your property. It cannot be refinanced until the lien is removed.
You can submit a lien withdrawal request with the IRS. However, you will not qualify for a lien removal if you owe less than $25,000 or if the debt can be repaid within five years. This means your only options are to pay your bill in full or sell your home and use the equity to pay back the IRS in full. If you can’t afford to pay your bill in full or move, ask a tax specialist if you qualify for an offer in compromise, PPIA, or other solution for the delinquent taxes that you owe.
5. Property Seizure
Your vehicle is your lifeline. You need it to get to work. You need it to take your mom to the doctor once a week. You own it outright, so there is no chance of it being repossessed by a bank or other lender. But you still wake up one morning and find it gone. This waking nightmare is a harsh reality for many people who have ignored their delinquent taxes.
Many people don’t realize that the IRS can seize any of your property to cover your delinquent taxes. This includes your motorcycle, car, home, and even business. If a property lien was not enough to get you to pay back the IRS, the next step is a property levy. The worst part is if they do not make enough from the sale of your property to cover your tax debt, interest, and penalties in full, they will continue attempting to collect the remaining balance. In other words, you may be without a car and still receive daily phone calls to pay your tax bill in full.
Some people think that they can get out of paying taxes by not filing their taxes. There are several things wrong with this line of thinking. First, any above-board employer has already sent your 1096 or W-2 to the IRS and your state’s department of revenue.
Second, failure to file a return is a criminal matter rather than a civil one. If the IRS comes after you for failure to file a tax return, you can go to prison for a year for each year you didn’t file your taxes. Even worse, the penalties associated with filing late are much higher than late payment penalties. If you are behind on filing your taxes and haven’t requested an extension, make filing your taxes your top priority. A tax specialist can help.
7. Ruined Credit
A tax lien is a public record and taken very seriously by companies interested in your creditworthiness. If you have a tax lien put on your property, your car insurance rates will increase due to the nosedive your credit takes. If you move, you will have to put down a deposit to get utilities in your name turned on. Only predatory payday lenders will offer you a loan, so if you need money for something, you’ll need to have the cash to pay for it.
8. Lost Time
Most overdue taxpayers are funneled through the IRS’s automated collection system, or ACS. This means you may spend several hours on hold with the call center trying to sort out a payment plan if you don’t have a certified tax specialist on your side.
Contact Geaux Tax Resolution Today
There are many ways the IRS can ruin your life if you ignore your back taxes. While an unaffordable tax liability is stressful, the best way to sleep better at night is to contact Geaux Tax Resolution in Lafayette, LA today. We have over 69 years of experience helping people just like you resolve tax problems just like yours. We look forward to the opportunity to put our insider knowledge to work helping you resolve your problems with the IRS.