What Is a Tax Levy? A Guide for Real Estate Investors
If you’re a real estate investor, you may be wondering if you can invest in tax levies in the same way as you invest in tax liens. While you cannot do this, it is important to understand what a tax levy is and how it can affect your finances. Here is a guide to the submission process. Review this information to familiarize yourself with the filings and what to do if you find a filing against you.
What is a tax levy?
A tax levy is a collection process used by the IRS and certain local governments to pay unpaid tax debts. A levy usually comes into play after your assets have already been pledged. It gives the tax authorities the right to seize your property for repayment. While asset seizure is certainly an option, tax levies are most commonly used as a last resort.
How does a tax levy work?
In total, there are four different ways the tax collection process can work. Read them through so you better understand how you will be affected if you ever find a tax levy against you.
Reduced tax refund
The IRS may hold you owed money on a tax return to pay off your outstanding tax liability. In addition to sticking to your federal tax return, the IRS can hold on to your state tax refund or local tax refund.
Garnishment of wages
An IRS levy can also take the form of a garnishment of wages. If your wages are garnished, it means your employer must withhold part of your salary and send it to the IRS on your behalf every payday. Of all the means the IRS uses to resolve a tax problem, this is probably the most widely used.
The next option is a bank levy. Here the IRS can instruct your bank to freeze your accounts for up to 21 days. During this time, they can work with your bank to liquidate your accounts for repayment.
Confiscation of property
If all else fails, the IRS can take assets like a house or a car and liquidate them to pay off your tax liability. However, there are some assets that even the IRS cannot touch. These include unemployment benefits, certain disability benefits, employee compensation, public support payments and child support payments.
In this case, the IRS has more weight than other lenders. Essentially, when you have a federal tax bill, the IRS can skip the line to stay ahead of your fellow creditors. Essentially, if you owe money to multiple sources, the IRS has the best chance of getting paid.
How do I know if a tax is being levied on you?
As mentioned above, a levy is usually used as a last resort. However, they occur when necessary. So if you think there may be a levy against you, you will likely receive a notification by email. In particular, the IRS always uses email as the preferred method of contacting a taxpayer.
If you ever received a document in the email for this purpose that said, “Final notice of intent to collect and notification of your right to be heard”, it is a good sign that a filing may be imminent Affects your bank account or other assets.
How to Get Rid of a Tax Fee
Of course, if there is a levy against you, you will want to do everything possible to get rid of it. Fortunately, there are several ways to do this. While they may not be all ideal options, they will help you get rid of your tax debt. Read each one to find out which one is best for you.
Pay your tax bill
In truth, the best way to get rid of a tax levy is by paying your creditor. As long as the tax authorities receive compensation, they will clear the levy and you won’t have to worry about your assets being frozen or property confiscated.
Set up a payment plan
If your tax bill is too big to pay right away, you can use the IRS to create a payment plan that is suitable for your budget. While your tax liability will continue to incur interest and penalties until it is paid back in full, if you ask the IRS to start a direct debit installment arrangement where at least three consecutive payments are withdrawn from your bank account, you will be able to them Cause them to withdraw all liens from public records.
Structure a settlement
With structured billing, the IRS agrees to help you find a tax solution by accepting less money than you currently owe. However, this option is rarely approved. If you think you want to go that route, the IRS has a tool on their website that can help you determine if you qualify.
However, if you believe that you received your submission notice in error, you can appeal. If so, you can apply to the IRS Office of Appeals for a debt collection process, which will review your case.
Register for bankruptcy
As a last resort, you can also file for bankruptcy. That said, filing for bankruptcy doesn’t always erase all tax debts. If you make this decision, it will also have a negative impact on your creditworthiness and make it difficult to qualify for other types of financing in the future. Before deciding on bankruptcy, speak to a tax professional about your options.
Understand the difference between a tax levy and a tax lien
Many investors wonder if it is possible to invest in tax levies. The truth is it isn’t. However, it is possible to invest in tax liens. The difference: A tax lien gives a creditor a financial interest in your assets and indicates the possibility that a tax could be levied in the future. In contrast, a filing is a process where the tax authority actually goes through the freezing of your assets or the seizure of your property.
If you are looking to invest in property tax liens, you should know that they are often auctioned off, much like foreclosed properties. When buying a tax lien, you must prepay any amount the homeowner owes. Then the homeowner has to repay you with interest.
Note that there is some risk involved in this type of investing. Property tax liens often have an expiration date after which it is impossible to collect unpaid debts. Pledgees must also exercise a certain degree of care. So be aware of your responsibilities before investing.
The bottom line of Millionacres
While receiving an IRS tax filing or any other type of tax filing is never fun, there are options to help you pay off your debts. If there is a levy against you, the best place to talk to a tax attorney or other tax professional about your financial situation. They can give you individual advice to help you overcome these financial difficulties and get out on the other side.