The economic meltdown of 2008 coupled with stilted growth of the job market has put substantial financial pressure on individuals struggling to meet their daily expenses. A substantial portion of an average citizen’s income goes towards paying taxes to the IRS. Taking into account that 80% of American are in debt, it is not uncommon to find people who owe back taxes or are unable to pay their IRS dues.
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What is a tax lien?
The IRS places a tax lien on people who are unable to pay their taxes. In other words, a tax lien is a notice stating that the IRS and the US Government has an official claim over a delinquent taxpayer’s property and all other assets he or she acquires after the lien has been filed. A federal tax lien on your property can harden up your credit conditions, damage your credit scores and make you generally ineligible for new lines of credit. It is therefore essential to tackle a federal tax lien as quickly and efficiently as possible before it deals any lasting damage to your creditworthiness.
What are the ways to handle a tax lien?
The IRS offers several ways to pay off back taxes and there are other ways of tackling a tax lien. Some of the methods are discussed below.
• Pay off the back taxes – The easiest and most obvious way to get rid of a tax lien is to simply pay off the tax amount that you owe (in full) to the IRS. Once you pay off your back taxes, you will be back in the good books of the IRS and they in turn will release the lien they placed on your assets. There are many informal channels you can use to acquire the funds required. You can borrow from a friend or family member, take out a personal loan or a home equity loan or sell a part of your assets.
• Offer in compromise – This is a program set up by the IRS through which you can pay off your tax debt for an amount which is less than you actually owe. You will be required to file a Offer in Compromise with the IRS and if they choose to accept the offer, you can settle the debt. The acceptance of the offer by the IRS is subject to conditions such as your financial situation. The tricky part is that you will have to convince the IRS that the amount you are offering is more than or equal to the amount they could potentially extract from you if they were to enforce collection actions.
• Negotiate a payment plan – The IRS had announced recently that taxpayers owing less than $25,000 can enter into a installment payment agreement via direct debit payment after which the IRS will drop the tax lien. Previously, the IRS would not release a tax lien until and unless all the back taxes owed plus interest had been paid off.
A tax lien looks bad on the credit report and damages your credit score. The best idea is to keep saving a monthly portion of your income so that you can pay off the IRS at the end of the financial year. In case you are unable to pay your taxes, the lien placed by the IRS on your assets can be tackled as well. You just need to know a few things before you decide on a method for handling the federal tax lien.