You are probably aware that if you fail to pay your credit card bills or other loans on time, your credit rating can suffer as a result. Not paying your income taxes on time could potentially have similar results to your credit rating. Watch this video to find out more about tax liens and how they will affect your credit rating.
Hello, I'm Scott from TurboTax with some important information about federal tax liens.
You are probably aware that if you fail to pay your credit card bills or other loans on time, your credit rating can suffer as a result. But did you know that not paying your income taxes can have the same affect on your credit score?
If you let your income taxes remain unpaid for too long, the IRS can place a tax lien on some or all of the personal property you own, as well as the property you acquire after the lien goes into effect.
But since the IRS gives you plenty of notice and opportunities to address your past-due taxes, the lien should never come as a surprise.
There are a couple of things that must happen before the IRS can place a lien on your property. First, it must determine the precise amount of tax you owe. If you don't dispute it, you will eventually receive a Notice and Demand for Payment. At this point, the IRS can create a lien if it doesn't receive your payment within 10 days. But during this time, it may be a good idea to contact the IRS to discuss any financial hardships you have or to inquire about your payment plan options.
If you ignore the notice, the IRS can choose to file the lien in court. Filing a notice of your lien in court notifies all of your creditors that the federal government has a legal claim on your property. When this occurs, it's possible that your credit rating will suffer. This means it may be more difficult for you to obtain loans, credit cards and even to enter into a lease.
You should also be aware of the implications of the lien itself aside from your credit rating. A lien on your property doesn't mean that the IRS is going to take your property. Instead, it just provides the government with a legal claim on your assets. So if you try to sell your home, for example, it will be difficult to find a buyer willing to purchase it while the lien is still valid.
In most cases, the lien remains effective until you pay your taxes. However, there are circumstances when the IRS will release the lien early, but it usually requires that you pay off your tax debt with the proceeds from the sale of your property.
Remember, with TurboTax, we'll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we've got you covered. Feel confident doing your own taxes.