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IRS Tax Penalties Explained: Why You Should Resolve Your Tax Debt This Tax Season

February 08, 2012 | Comments: 0 | Views: 179

Tax debts arise for a number of reasons. You might have underpaid on a previous return, either accidentally or because you simply couldn't afford the balance. You might have filed your annual return late or have forgotten to set up quarterly payments, if you're an independent contractor. Now, you're subject to fines on top of the delinquent balance, and you're not sure how you'll ever pay it all back. This tax season, read up on the various tax penalties the IRS can hit you with, and resolve to pay off those back taxes before your debt snowballs.

Tax Liens

When you reach a certain tax debt threshold, the IRS can place a tax lien on your property or real estate to secure payment for your delinquent taxes. This lien gives the IRS the legal right to claim your property should you fail to pay the debt. The lien goes on your financial record. While under a tax lien, you will have difficulty securing a loan, getting credit, or opening a new bank account. You'll also be unable to refinance or sell the property under the lien, and new property you purchase while under a lien becomes subject to the same penalties. Note that even when you've resolved a tax lien, it remains on your credit record and can affect your financial transactions going forward. Thus, it's always better not to let the situation reach the point of a lien in the first place.

Wage Garnishment

The IRS can withhold portions of your paycheck each month to cover an outstanding tax debt. While this can certainly help you pay off the debt, it can also add to your financial hardship. Federal law prohibits wage garnishment from exceeding 25 percent of your disposable income, but even that amount can diminish your ability to pay your bills and meet your family's needs. A tax resolution professional can work to negotiate a wage garnishment cessation and help you find other ways to pay off your back taxes.

Tax Levies

While a tax lien represents the IRS's legal right to your property, a tax levy refers to the actual seizure of property and assets to cover the back taxes owed. If you've been under a tax lien and have failed to resolve it, or failed even to show the government that you want to resolve it, you will likely receive a summons indicating an impending tax levy. This penalty is the IRS's final effort to collect what it is owed.

Tax issues can leave you feeling overwhelmed and helpless, but educating yourself on the IRS's tax penalty system can provide the impetus you need to take charge of your financial future. After all, while your current situation might feel scary, you may still be able to avoid tax liens, wage garnishment, or seizure of your property. Take advantage of tax season and contact a tax attorney or tax resolution professional to learn more about your payment and tax relief options.

Penny Jones enjoys filing her tax returns early each year and is a senior Internet marketing strategist for Prospect Genius, a leader in local online advertising.

Source: EzineArticles
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