Understanding tax liens for SMB owners
What is a tax lien?
A tax lien is a legal claim by a government entity against a noncompliant taxpayer's assets. It occurs when a business or individual fails to pay taxes owed on time. The lien ensures the government legally has the first right to your property over other creditors.
How does a tax lien affect my SMB?
A tax lien can negatively impact your SMB’s creditworthiness. It can make obtaining commercial financing more difficult, as lenders often view it as a sign of financial instability or poor management. It also might restrict your ability to sell or use your assets as collateral.
Can I still obtain commercial financing with a tax lien?
While challenging, it's not impossible. You may need to provide additional documentation or seek lenders specializing in high-risk financing. However, expect higher interest rates or stricter terms.
What should I do if I have a tax lien?
Prioritize resolving it. You might consider setting up a payment plan or negotiating with the tax authority. Getting professional advice from a tax expert or attorney is also advisable.
Will paying off the lien remove it from my record?
Paying off the lien will lead to its release, but it may still appear on credit reports for some time. You can request a lien withdrawal from the taxing authority, which removes the public Notice of Federal Tax Lien, potentially aiding in improving your credit score.
How can I avoid a tax lien?
Stay diligent with tax obligations. Regularly review your accounts, keep accurate records, and ensure timely tax payments. If you foresee difficulties in meeting tax obligations, contact the tax authority proactively to discuss options.
How long does a tax lien last?
A tax lien can remain in place until the tax, plus any interest and penalties, are paid in full or until the expiration of the statutory period for collection, which is typically 10 years.