Timely payment of taxes is an essential duty for any individual or business. Taxes ensure that state and local governments have the resources they need to carry out essential functions. Unfortunately, many people consider the payment of taxes as an unnecessary nuisance. While preparing and filing taxes can be time-consuming, the consequences of being negligent on your taxes—especially if you owe taxes—are far worse.
If you owe taxes to the IRS, make sure you take steps to satisfy the outstanding debt in a timely fashion. Many people don’t realize how crippling the consequences that surround overdue taxes can be. Not only can your business incur liens and levies from the IRS, but your assets can also be seized to satisfy an outstanding tax debt.
It’s important to understand the consequences you’re likely to face (as either an individual or a business) if you owe taxes to the IRS.
Consequences for individuals
As an individual, you are required to report all your income to the IRS (through filing a tax return). The tax return will determine if you are entitled to a refund or if you owe money to the IRS. There are several cases where you may owe taxes, such as when you receive income from investments or unemployment benefits.
Regardless of the reason why you owe money, paying back your past due taxes should be a top priority. Unpaid taxes can easily accumulate penalties and result in costly consequences. Some of these consequences include:
- Liens from the IRS
If you owe taxes, the IRS can issue a tax lien on your assets and property. A lien is a legal claim against your assets, filed in the amount equal to how much you owe. A lien essentially turns your assets into security for your past due taxes.
Federal liens can be damaging in many different ways. For example, they affect your credit history and can limit your financial flexibility moving forward. You also cannot use your assets (such as land, vehicles, and homes) to pursue other financial interests when the lien is still active.
- IRS Levies
While a lien from the IRS simply secures the debt while leaving you in possession of your assets, a levy goes one step further. IRS levies may result in the legal seizure of your property (and income) to satisfy any past due taxes.
An IRS levy can also result in the seizure of your bank accounts or garnishment of your wages, an action that is quite difficult to reverse once enacted.
Speaking of wage garnishment, another consequence you can face for owing taxes to the IRS is withheld wages. In an attempt to satisfy an outstanding debt, the IRS may resolve to issue your employer with a wage garnishment notice. This means that your employer will be legally obligated to withhold any past due taxes from your paycheck and send this amount directly to the IRS.
The IRS can garnish up to 70% of your wages and leave you with as little as $862 (for single taxpayers), and $1725 (for married couples with one child) per month. Garnishment can also impact your reputation at work and your financial health moving forward.
Consequences for businesses
All businesses are required to pay relevant local, state, and federal taxes. Whether you are a startup company or a multinational corporation, finding out your tax obligations (and sticking to them) is an important responsibility.
However, this is easier said than done. Preparing business taxes in Colorado (and in many other states) can be quite complicated and time-consuming. But what if you neglect your owed taxes to the IRS? The consequences can be extensive to you and your business.
Here are some of the penalties you can face for past due taxes.
- Business tax liens
A lien is a legal claim against your company assets, made in the amount owed to the IRS. Business tax liens essentially notify all stakeholders, creditors, and financers that the IRS has a legal claim against your company assets/property.
Until the past due amount is settled, a lien can cripple your financial operations and even degrade investor confidence in your Denver area business.
- IRS Business Levies
Similar to individual levies, IRS business levies are essentially legal notifications of the seizure of your property and/or income. If you do not act fast to resolve the taxes owed by your business, company assets may be seized by the IRS to settle the past due amount.
Levies can also be issued against your company accounts, accounts receivables and other sources of incoming cash flow.
- State penalties
In addition to liens and levies, your business can also incur many different state penalties for failing to pay taxes on time. Penalties further add to your tax burden and can be financially crippling to your business.
For example, penalties can be assessed to the owners/officials of business corporations that don’t remit taxes to the state. In Colorado, your business can incur as much as 150% of state taxes for any uncollected amounts. Any failure (whether intentional or not) to pay state taxes can also result in penalties between 10-100% of the unpaid amount.
What to do if you Owe Taxes to the IRS
Failure to pay your past due taxes to the IRS can result in massive consequences. Not only can you end up with levies and liens, but you may also incur additional IRS and state penalties that further add to your tax burden.
If you’ve fallen behind on your taxes, seeking tax resolution is your best available choice. The IRS may offer a compromise for both individual and business taxes if you show good faith in satisfying your debt.
However, negotiating with the IRS can easily be intimidating and confusing.
This is where True Resolve Tax Professionals step in. We can assist you in resolving your Colorado-based state and federal taxes in many different ways. From negotiating an IRS installment agreement to IRS penalty abatements, our professionals will work closely with both individuals and businesses in seeking an appropriate resolution.
When facing the reality that you owe taxes, the most crucial step is to act quickly. Don’t let the amount you owe continue increasing due to costly penalties. Instead, contact us today to receive the professional tax help you need.