5 Easy Ways To Avoid An IRS Tax Lien

Here are 5 easy ways to avoid a tax lien and keep all your assets.

5 Tips to Avoid Tax Lien on Your Property

Lien Definition: a legal claim on the property of another person until a debt is fully paid.

1. Pay Your Tax in Full

One effective tip to avoid tax lien is to fully pay the tax you owe to the IRS. There are several ways to pay the IRS. You can pay in full directly from your bank account, debit or credit card, or EFTPS. Electronic Federal Tax Payment System, or EFTPS, allows you to make secure online payments through an IRS portal. Additionally, you can also mail a check or deliver your payment directly to your local IRS office.

2. Pay Your IRS Tax in Installments

You can also choose to pay your tax on installment terms. If you owe less than $10,000, you can enter in a Guaranteed Installment Agreement. With this arrangement, the IRS will receive monthly payments for the tax you owe. The amount of monthly payment and the duration of the installment depends on how much you owe the IRS.

Likewise, a Streamlined Installment Agreement is similar to a Guaranteed Installment Agreement. The only difference lies in the amount of unpaid taxes. You can register to a Streamlined Installment Agreement if your unpaid tax ranges from $10,000 to $25,000.

3. Make a Down Payment

However, if you cannot pay the tax amount in full or installments, you can opt to give an initial down payment. Make significant payments for your tax until it reaches $25,000 or lower. Make sure to post your payment to avoid a tax lien on your property. You can then enter a Streamlined Installment Agreement.

4. Look for a Tax Lien Certificate Investor

If your property has a tax lien on it, and you cannot pay your tax, look for an investor. Tax liens prevent you from selling your property or using it as a collateral for possible loans; however, tax lien certificates are purchasable.

Tax lien certificates, issued normally by the tax assessor’s office, verify that there is a federal tax lien imposed on your property. It also states how much you owe to the IRS.

There are investors on the look out for tax lien certificates at public auctions organized by the tax collector’s office. Once an investor buys your tax lien certificate, he or she will pay your unpaid tax balance. Then, you will enter a payment arrangement with the investor to repay the tax lien, of course, with interest.

Maximum interest rate imposed on repayment depends on which state the lien is. For instance, the maximum interest rate in Iowa is only 2 percent. In contrast, the maximum interest rate in Florida is 18 percent. There are even some states where the maximum interest rate is 36 percent!

You can also make arrangements for the duration of repayment with your investor. Repayment duration ranges from 6 to 36 months. If you are still unable to pay your investor, they have the legal right to foreclose your property.

5. Respond to IRS Notices

The last tip to avoid getting federal tax lien is to respond to all IRS notices. If you respond to notices, both good and bad, the government will not assume that you are delaying tax collection. In comparison, if you ignore their notices, collectors will assume that you are hiding or transferring your assets. This will make them put a lien on you to secure their interest. Remember though, be aware of IRS scams prevalent in the market.

Tax liens, once placed, stay on your credit record forever. This is regardless of if you already paid the tax amount or not. This will affect your creditworthiness for the next 10 years. Avoiding tax liens in the first place will help you keep your credit score in stellar condition.

Which one of these tips is the easiest for you? Do you have any other tips to avoid having a tax lien on your property? Share your thoughts below.

Up Next: What Federal Tax Exemptions Can I Claim?