Having unpaid tax debt is the first step the walk towards financial ruin. Tax debt does nothing to improve your financial situation, and gives the IRS all the ammo it needs to pry open your business’s books and get its hands where they don’t belong. That’s why getting your tax debt paid and out of the way is key to getting back on positive financial footing. Some people think that having a little tax debt in your background won’t be such a big deal. But, unpaid tax debt hinders your financial future in many ways.
Financial gurus and experts always give the same piece of financial advice to anybody who will listen: save to build an emergency fund.
In our economy, anything can happen. Market swings come and go, and so do jobs. Financial experts advise having an emergency fund that lasts eight months in case you lose your job. The fund should cover everything from rent (or mortgage) to living expenses. Having unpaid tax debt with the IRS hinders your ability to save for this very reason, so it’s better to pay your tax debt and start planning your financial future.
Chances are, where there’s smoke, there’s fire. Apply this analogy to finances, and you have more than just another trite idiom.
Tax debt arises for a number of reasons, but the most common is that the taxpayer or business has let the overall financial situation go down an economic rabbit hole, with debts being avoided, and taxes going unpaid.
But if your tax debt gets resolved, then you’ll have an opportunity to get a fresh start with your finances and with the IRS. Sometimes, a fresh start is what’s needed for a financial turnaround.
The IRS doesn’t get its hands dirty with any taxpayer or business. But, if there’s tax debt, that’s all the reason it needs to commence an audit, levy a wage garnishment, or institute a tax lien on your home or property.
IRS enforcement actions are some of worst things that can happen to a taxpayer or business’s financial situation. A wage garnishment redirects a portion of your income into the government’s coffers, taking income away from savings and investment purposes. An audit will suck up precious time from running your business and towards giving the IRS years-old financial statements.
And, a tax lien on your home or property is a message to the world at large that you’re incapable of paying your taxes and are likely in tax debt with the IRS. It also gives creditors all the reason to deny you that needed line of credit or business loan.
There are many reasons to pay your tax debt, but the fact that it hinders your ability to better prepare for the future is reason enough. If your tax debt gets too out of control, try working with a tax professional to get it all sorted out.