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Tax season often brings anxiety and stress for business owners and families alike. What’s more, the IRS uses its own complex legal and financial language, which can make taxes feel overwhelming. To help ease some of that burden, we’ve put together this article to explain a few key tax concepts you should know, including:
- The differences between tax credits and standard or itemized tax deductions.
- When tax audits can happen and how to deal with them.
- How to protect yourself and your property from tax levies and tax liens.
What Are “Tax Credits” And How Do They Differ From “Tax Deductions”?
While our firm typically steps in when tax issues arise, understanding basic tax terms can help you avoid problems down the road.
A tax credit directly reduces the amount of taxes you owe. For example, if you qualify for a $1,000 tax credit, it means you’ll pay $1,000 less in taxes. Tax deductions, however, reduce your taxable income, which indirectly lowers your tax bill. Although both are helpful, tax credits usually offer a bigger financial benefit.
What Is The Difference Between the “Standard Deduction” And “Itemized Deductions”?
The standard deduction is a fixed amount that lowers your taxable income without the need for any documentation. Many taxpayers opt for the standard deduction because it’s simple and convenient.
In contrast, itemized deductions require you to list and document each deductible expense, such as medical bills or charitable donations. If your itemized deductions exceed the standard deduction, you could lower your tax bill further, though it requires more effort.
Both options are important for maximizing your tax return. While Certified Public Accountants (CPAs) and tax professionals are typically the go-to experts for handling these details, we can provide guidance if things take a wrong turn—such as when the IRS initiates an audit.
Attorney Lance Drury is a seasoned U.S. tax resolution lawyer based in Missouri who has helped countless clients just like you deal with the IRS to avoid tax levies and liens. After over 20 years at the helm of his tax advocacy firm, he is the ally you want on your side when the IRS comes knocking.
If the IRS is after you for back taxes, or you are worried about an audit, contact The Law Office of Lance R. Drury today to schedule an initial consultation.
What Is An “Audit” And Why Might One Occur?
An IRS audit happens when the agency reviews your tax return to make sure everything is accurate. If something doesn’t look right—such as unusually high expenses in certain categories—it could trigger an audit. In some cases, the IRS may even audit you if you haven’t filed a return at all.
If you run a business, especially one that handles a lot of cash, like a convenience store or restaurant, you might face extra scrutiny from tax authorities. These types of businesses are audited more frequently because there’s a higher risk of underreported income.
During an audit, the IRS will ask you to provide documentation to support your income and expenses. Their goal is to ensure you’ve paid the correct amount in taxes. To protect yourself and avoid potential penalties, it’s important to keep accurate and organized records so you’re prepared if an audit comes your way.
What Are “Tax Liens” And “Tax Levies?”
Many people confuse tax liens with tax levies, but they are two distinct actions the IRS can take to recover unpaid taxes. Understanding the difference between a tax lien and a tax levy is crucial, as each carries different consequences and requires a different approach to resolve.
- Tax Levies
A tax levy is when the IRS seizes your income, assets, or property to settle your tax debt. The most common ways the IRS enforces a levy are by freezing your bank account or garnishing your wages—taking up to 90% of your take-home pay if you’re a W-2 employee, or even up to 100% if you’re an independent contractor filing a 1099. In more serious situations, the IRS may seize other assets, though this happens less frequently. - Tax Liens
A tax lien is a legal claim against your property. It acts as a warning that if you don’t resolve your tax debt, the IRS may eventually take your assets. A lien attaches to your property, like your home, and stays in place until the debt is paid off, typically with interest. If the debt isn’t settled, the lien could lead to foreclosure, similar to what can happen with an unpaid mortgage.
Are There Any Properties That Cannot Be Claimed With A Tax Lien?
Just as a mortgage lender files a deed of trust to protect their interest in your property, a tax lien secures the IRS’s right to collect any proceeds from the sale of the property until the tax debt is fully paid. Fortunately, a lien does not lead to an immediate seizure of your property, but it acts as a warning that the IRS has a legal claim against your assets.
One positive aspect is that federal tax liens have an expiration date. They typically expire after a certain period, provided the debt has been resolved. This is generally true at the state level as well, though the procedures can vary from state to state.
In Missouri, for example, the state files a judgment lien with the Circuit Court of your county of residence, rather than with the recorder of deeds. It’s also important to note that, unlike the IRS, state authorities may not be required to give you advance notice before enforcing a levy based on that lien.
Is There Any Way To Protect My Property And Assets Against A Tax Levy?
A tax levy occurs when the IRS or state tax authorities seize your assets, such as wages or bank accounts, to settle unpaid tax debts. However, the IRS must follow a specific process before enforcing a levy.
Since 1998, changes implemented during the Clinton administration require the IRS to send a series of notices before taking action. This sequence of letters gives you the opportunity to resolve your tax debt or contest the levy in a hearing.
How To Protect Yourself From A Tax Levy
The most effective way to protect your assets is to set up an agreement with the IRS or state authorities. This could involve arranging a payment plan or other repayment options. Once an agreement is in place, the key is to remain fully compliant by:
- Filing your tax returns on time
- Making timely payments on any new tax obligations
- Adhering to the agreed-upon payment terms for your outstanding debt
As long as you follow the terms of the agreement and stay compliant, the IRS is unlikely to pursue further action, including levies, against your property. Taking proactive steps early on, such as contacting a tax professional and setting up a plan, can give you peace of mind and protect your financial stability.
Attorney Lance Drury is a seasoned U.S. tax resolution lawyer based in Missouri who has helped countless clients just like you deal with the IRS to avoid tax levies and liens. After over 20 years at the helm of his tax advocacy firm, he is the ally you want on your side when the IRS comes knocking.
If the IRS is after you for back taxes, or you are worried about an audit, contact The Law Office of Lance R. Drury today to schedule an initial consultation.
IRS Tax Resolution Case Study: How A New Car Could Save You Thousands
Let’s walk through a real example of how strategic financial decisions can significantly reduce your tax burden.
A few years ago, one of our clients owed the IRS around $40,000. After reviewing her financial situation multiple times, we determined she could reasonably afford to pay $600 a month toward her debt. With four years remaining on the IRS’s collection statute, this meant the IRS could potentially collect about $30,000 from her.
But we saw an opportunity to help her save. We recommended that she buy a new car. Initially, she thought we were crazy—she didn’t think she could afford it. Her car had over 200,000 miles on it, and although her car payments were long over, she was driving on borrowed time with a vehicle that could break down at any moment.
Here’s why the new car was a smart move: car payments are an allowable expense when determining your ability to pay the IRS. If her old car broke down while she was making $600 monthly payments to the IRS, repair costs would have eaten into her budget, leaving her unable to keep up with IRS payments. In that scenario, the entire deal with the IRS could have fallen apart.
Instead, she took our advice and got a new car with a $500 monthly payment. This reduced her ability to pay the IRS, and she ended up paying just $100 a month to the IRS for the remaining four years—less than $5,000 in total on a $40,000 debt. By the time the collection statute expired, she had saved over $30,000 and still drove away with a reliable, new vehicle.
This case highlights how understanding allowable expenses and making smart financial decisions can save you thousands when dealing with IRS debt.
How We Serve Clients Like You
From our very first meeting, we focus on one key goal: getting you back into compliance with the IRS. Once you authorize us to represent you by signing a power of attorney for both state and federal matters, we can start gathering the information needed to help you.
We take a strategic approach. Instead of immediately contacting the IRS—which could put you on their radar and lead to more aggressive demands and tighter deadlines—we use specialized software to discreetly access your records. This allows us to gather all the necessary data without triggering unnecessary attention. At the state level, though, we may need to make direct contact, as state tax authorities handle matters differently.
With the information we collect, we prepare a detailed report for you. This report, usually 10 to 15 pages for individuals and 50 to 70 pages for businesses, breaks down your current standing with the IRS. We’ll review this report with you step by step, explaining exactly what needs to be done to get you compliant.
To achieve compliance, you’ll need to have your most recent 10 years of state tax returns and at least six years of IRS returns properly filed. Once that’s done, we’ll have you complete a financial statement. This will help us negotiate the best possible terms with the IRS, based on your ability to repay what you owe.
In some cases, we can even offer advice on how to structure your assets and expenses to improve your financial position with the IRS, helping you secure more favorable terms and move forward with greater peace of mind.
Need Help With Tax Relief?
For more information on how to deal with State And Federal Tax Law In Missouri, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling 573-883-3056 today.
