How to Avoid a Tax Levy

Millions of individuals living in the United States are often haunted by one single question ‘How to avoid a tax levy? But unfortunately, each one of them is clueless about how and what constitutes a tax levy and spend their entire lives fearing the consequences of this particular situation. Every citizen of the United States must understand that a tax levy is one of the most important and relevant administrative procedures carried on by the IRS, aka, the Internal Revenue Service under statutory authority. There is a special category of individuals who get the misfortune of facing the brunt of this particular procedure. Before getting to the details regarding this topic, let us first understand the meaning of a tax levy.

Definition of a tax levy and its true meaning

The word tax levy consists of 2 words- tax and levy. Tax means compulsory payment that every individual needs to do to pay a legal obligation to the government, and levy means imposition. Thus, tax levy means legal seizure of one’s property and assets in case an individual is unable to clear his/her taxes due.

Every adult individual in the U.S.,  having a salary or wages, retirement account, rental income, gain from a property sale, or income from any other source is required to submit his/her taxes due to the concerned authority within a specific time frame. However, in case the individual fails to submit taxes, the IRS has the authority to place a levy on all his/her assets and income including receipt of social security benefits, retirement income, bank accounts and wages. A Levy, not to be confused with a lien, is an entirely different concept, and has nothing to do with a lien, in which your property is kept as security unless you clear your taxes due.

When is a tax levy placed on your assets?

Not everyone’s assets and properties are subjected to a levy since a levy is directly connected to a person’s unpaid tax debt, which has usually been due a for a long time. Simply, a person who doesn’t clear his/her tax debt within a time frame allotted by the IRS is subjected to a tax levy. A levy on your assets, is extremely rare, and is usually made after the following instances take place together:

  • When the IRS has assessed your tax due and has sent you a Notice and Demand for Payment;
  • When you didn’t respond to the Demand for Payment and;
  • When you receive a Final Notice of Intent to Levy together with Notice of your right to a hearing, which is sent 30 days before applying a levy on your assets and you don’t respond to any of these.

A Tax Levy is considered to be a final method of enforcement of taxation applied by the IRS when all attempts of collecting taxes fails miserably. When you have a tax debt you cannot pay the IRS will work with you to pay the debt, but you must communicate with them to get that debt paid off.

Who gets a tax levy and who places such a levy?

Any individual who fails to meet the above-mentioned requirements can get a tax levy on his/her property, wages, residence, retirement income and benefits, commissions, cash value of life insurance, and even on social security benefits. It is only the IRS or the Internal Revenue Services who has the power to impose such a levy.

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You can certainly owe hundreds of dollars to all your debtors, but the IRS makes sure that you don’t owe any tax money to the government, and that is the reason why the IRS takes possession of all your assets, and can make you completely devoid of your property and most of your income. When an individual’s property is placed under levy, there are chances that his/her bank and employer may be asked to pay instead of him. This is because it is always easier to seize liquid cash instead of finding buyers who can purchase the owners property. All in all, once the levy is placed, the individual loses all control over his assets and incomes.

What are the various ways of avoiding a tax levy?

The best way of avoiding a tax levy would be paying all your taxes on time and according to the procedures designed by the IRS. But there are other methods in which a person cannot just avoid a tax levy but also lead a life without worrying about it, some of which are enlisted below:

  • Know the taxes you are responsible for paying

The first and the foremost way of avoiding any hardships caused by a tax levy are by understanding the tax structure levied in your country. Going through the entire tax structure would instantly make you aware of the tax brackets you belong to and you would exercise more caution in a timely payment of your taxes.

  • Regularly check the taxes you owe to the government

The revenue service of our country needs to be applauded because; it not only diligently maintains income and tax details of each and every citizen but also displays them in case of need. Any individual having doubts regarding his tax liability can visit the IRS website and check his income details along with tax liabilities he/she is subjected to. This way one wouldn’t have to waste time on calculating taxes and can readily submit his/her taxes due, to the government.

  • Understand that your tax return is important

A number of people get a levy or lien notice from the IRS because of the inappropriateness and incompleteness reflected in their tax return. There are instances where people either fill in wrong personal details or income details and get harassed later for their meager mistakes. Thus, you must exercise a lot of caution while filling out your tax returns, and don’t forget to ask for help from a professional tax preparer if you have questions or are confused about anything, no matter how small.

  • Use the help of a tax professional, if required

If you don’t feel confident enough to calculate and submit your taxes or are clueless about filing a tax return then, you can surely ask for the help of a professional such as a tax preparer who is a licensed enrolled agent or licensed CPA review existing tax forms or file the entire form for you. The most pertinent thing to take note of here is that the professional you hired for yourself must be a person possessing qualities of integrity and honesty. Don’t get fooled by attractive offers and schemes in which people tell you methods to avoid tax liability. Instead, exercise care and morality every time you pay your taxes. This one small step could save you huge amounts of time, and save your money and assets in the future.

File a tax return stating every detail you know about your total income and make sure to calculate correct taxes on every single tax form. Finally, submit the tax dues to the concerned authorities and stay away from the fear of a tax levy for the rest of your life using these small steps.  Be sure to answer every single letter you receive from the IRS to clear up mistakes early, you will avoid months, and in some cases, years of unnecessary interest and penalty charges.

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Lois Center-Shabazz
author of, Live Rich Save Money! Budget Diary
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