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The Tax Error That Can Ruin Your Credit

If your business is a private business, like most small businesses, your business finances are usually hidden. But other companies can get an idea of ​​the financial health of your business, by reviewing your credit reports. Anyone can view your company's credit report. Having a positive business credit history is therefore an important part of your company's reputation.

In addition to falling behind on payments to lenders and sellers, there is one item that can seriously hurt your business credit, and it's a tax lien. Here's how to spot and fix this credit score killer.

What is a tax lien?

No matter why you missed a tax payment – maybe you do not understand the tax obligations of your business or your books are an old mess – if you or your company is late on its tax obligations, the IRS or your state tax authority may "deposit" or "place" a tax lien, which essentially gives the government a legal claim against your property. When you owe tax debt to the federal government, for example, he can file a federal tax lien notice. This article appears in the "public record" (court records), alerting others that it has an interest in your company's assets.

Credit reporting agencies – companies that compile corporate credit reports – often get information from courthouses and then include personal or professional tax privileges in credit reports . A tax lien is considered a significantly negative element and can make it difficult to obtain a credit.

Although the focus here is on professional tax privileges, it is entirely possible that a tax lien arising from business activities may be filed against you personally. For example, if you operate as a sole proprietor, your personal finances and those of your business are essentially the same, and you are personally responsible for paying taxes on the income generated by your business. (You can read more here about how to separate your business and personal finances to protect yourself.)

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What can you do about it?

First of all, it is essential that you take care of the tax debt as soon as possible because taxes and penalties can continue to accumulate. In addition, government agencies often have significant collection powers.

Although you should receive a tax debt notice prior to filing the lien, it is possible that a notice may slip through the cracks if, for example, you have moved or closed your business. It is also possible that the credit reports of companies with similar names are mixed with each other, which could give rise to a tax lien mistakenly appearing on your company's credit report.

Monitoring your business credit reports is crucial for you to quickly investigate and respond if you see one appear on your credit reports.

If you confirm that a tax lien has been filed against you personally or against your business, speak immediately with your accounting professional. You may have options that can help you put the debt behind you. Three to consider:

  1. Paying the Tax Debt This is an obvious first choice, but it may require you to be creative in finding the money needed to pay off the debt. You may be able to liquidate certain assets or obtain financing to cover the amount owed, for example.
  2. Participate in a payment plan You may be able to enter into a payment agreement to pay the tax debt over time. While it is likely that the interest will be charged, it can often be less expensive to go this route than to borrow money from a lender.
  3. Negotiate a settlement. You may be able to use a compromise offer to settle the tax debt for less than you owe.
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How long will it be?

There is no limit to the duration of the declaration of tax privileges of companies. Each commercial credit assessment agency has its own policy regarding the time that they may appear on reports, sometimes for more than 10 years.

Federal law, however, limits the period of validity of tax privileges on personal credit reports. They can appear on credit reports for seven years if they have been paid, and indefinitely if they are unpaid. (In reality, however, credit reporting agencies often stop reporting them on personal credit reports once they are between 7 and 10 years old).

Note that paying or resolving your tax debt does not mean that the tax lien is automatically removed from your credit reports. You can, however, be able to ask the IRS to withdraw the privilege using the IRS Form 12277. Your accounting professional can help you understand if there is a basis for requesting the withdrawal. (You can even apply for a withdrawal while you are paying tax debt under an installment agreement.) If you manage to get a withdrawal, you can ask the IRS to provide up-to-date information to them. Credit reporting agencies or you can submit to you to inform credit reporting agencies, requesting that the privilege be removed from your credit reports.

State tax authorities have their own policies. If a tax lien has been filed against you or your business by a local or state tax authority, speak with your tax professional to understand your options.

Another tip: Many tax liens have recently been removed from the personal credit reports as part of an initiative by major credit reporting agencies to ensure the # 39, accuracy of the reported credit data. . You may have been lucky, credit-wise, and find that happened to you when you examine your credit reports. Just remember that a tax lien does not appear on your credit reports does not mean that the debt does not exist. You will always want to find a way to take care of this so that you do not have to pay even more because of interest and penalties.

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Author : Gerri holds the position of Market Education Officer for Nav, which provides entrepreneurs with simple tools to create commercial credits and access loan options based on their credit scores and needs. She develops educational programs and content for small business owners, and works on advocacy initiatives. A prolific writer, his articles have been featured on popular sites such as Yahoo !, MSN Money,,,, Forbes, the Today Show website and many others.