Home Business Understanding How a Tax Lien Affects Your Business (And What to Do If You Get One)

Understanding How a Tax Lien Affects Your Business (And What to Do If You Get One)

10 min read
Understanding How a Tax Lien Affects Your Business (And What to Do If You Get One)

Letters from the IRS are no fun. Certified letters from the IRS saying that they’re putting a tax lien on your property or business is downright scary.

The IRS issues more than 1 million letters each year to place a lien on the property to recover unpaid taxes. This can impact your business, your finances, and your stress level.

How can a tax lien impact your business? Read on to find out.

What Is a Tax Lien?

There are two terms that you may be familiar with. Tax liens and tax levies. The IRS will use them to recoup money that is owed for taxes.

A tax levy is a claim that the IRS will place on your bank accounts and income. For example, if you owe back taxes, the IRS will notify your job and your bank to lay claim to your wages and bank accounts for unpaid taxes.

A tax lien is what the IRS will issue on your physical property, such as your home, car, or business property. They will make a financial claim on your property to recover the funds you didn’t pay in taxes.

Tax Liens and Your Business

How does a tax lien affect your business? It depends on which entity owes taxes. For example, if you have an LLC and you personally owe taxes instead of the business, then your business isn’t impacted. However, your personal property like your home will be affected.

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When you owe business taxes, your business assets are at risk. That means any property owned by the business, such as buildings and cars are subject to seizure by the IRS.

The biggest impact will be on your cash flow. If you plan to get a small business loan or otherwise finance your business, banks will see that the IRS has a claim on your business and won’t lend you money until the lien is lifted.

What to Do If You Get a Tax Lien Letter?

If you do find that you’re in a position where the IRS is going to issue a tax lien on your property, you do have options.

The most important thing to do, even if you don’t have the funds to make a tax payment, is to call the IRS and communicate with them. You do have options, such as filing an offer in compromise, which may allow you to pay less on the total amount owed.

You can also offer to make installment payments on your taxes. The IRS is willing to work with you, you can’t bury your head in the sand and hope that it goes away. That strategy will only make your situation much, much worse.

You may be inclined to hire a tax lien attorney like Abajian Law that specializes in working with the IRS to resolve tax issues.

Protect Your Business from Tax Liens

When you owe a significant amount of money to the IRS, it’s tempting to hope that the problem will just go away.

Unfortunately, the problem will get worse and will eventually result in a tax lien letter from the IRS. The best way to avoid this scenario is to confront it early and work with the IRS to pay your taxes.

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Would you like to know more about paying taxes? Check out this article that shows you why you should hire a tax consultant.

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