How Do You Know if You Owe Back Taxes To the IRS?
Before we get into investment accounts and back taxes, let's find out how you know if you owe back taxes. First, the IRS notifies you in writing about certain things including questions about your tax return, you owe a larger or smaller amount of taxes, or if you have a balance due. You do not have to notify the IRS if you agree with the letter. However, you can report phishing or scams, if you're suspicious of the notification you received from the IRS. The IRS will not initially contact you via email, text, or social media, and only with a letter. You can call at 800-829-1040 as well if you suspect your letter or notification to be a scam as well.
How Do I Pay Off Back Taxes to the IRS?
The IRS offers several ways to pay off back taxes you owe for previous years. If you get a letter from the IRS with a due date to pay the balance, you should read it clearly and respond immediately via phone, to reduce interest and reserve your right to an appeal of the findings. You can also make a payment online towards your balance, as well as send a check, money order, or cash. The IRS highly recommends paying online as the safest and fastest way.
However, if you're not able to make a payment right away, you can apply for an IRS Payment Plan or an Offer in Compromise with the IRS. The IRS also allows individuals and businesses to pay off back taxes in monthly installments, either long-term or short-term. These payment plans are based upon how much you owe, where short-term is for individuals owing over $120,000 and pay off in 4 months or less. The long-term is for individuals owing $50,000 or less and paying monthly for at least 4 months. These two amounts include interest and penalties.
The Offer in Compromise plan allows you to settle your tax balance for less than what you owe. This option is for people who can't pay the full amount. The IRS gives many financial situations, like ability to pay, expenses, or asset equity. You must use the pre-qualifier to apply for this offer. This offer includes your proposal to pay the IRS the desired amount. Most of all, it is not guaranteed to be approved.
What Leads to Garnishing Wages and Bank Accounts for Back Taxes?
The IRS garnishes your wages if you do not respond to the several letters sent to you via mail. It sends a note to pay, a notice to levy and a right for you to have a collection due process. You can request a hearing to finalize a plan to pay the back taxes to avoid your paycheck being garnished. It is crucial to respond immediately to any notice from the IRS, to avoid your paycheck being garnished.
Trading apps like Robinhood make investing easy. It allows for the average person, to get involved without being a licensed broker. Individuals using the app generate gains and losses on stocks.
Anyone that is actively trading must report their earnings to the IRS. What happens is that Robinhood sends you a 1099 tax form, which summarizes your earnings for the entire year. You could possibly owe taxes if you profited from the trading, or if you sold stocks.
Can the IRS Garnish your Investment Accounts for Back Taxes?
The IRS or other creditors can garnish your non-retirement stocks. A court order must be filed from the creditor to get the garnishment however. Once the stocks are seized, they are sold on the market, to pay off the debt. There are laws protecting your IRAs and 401(k)s from being garnished, since they are for retirement. This falls under the Employee Retirement Income Security Act (ERISA), which covers all states.
How Do I Stop a Garnishment?
It is important to consult a tax professional first to seek guidance and state your case. Request a court hearing to state your case and stop the garnishment. You must explain your inability to pay the back taxes and request a stay of collections.
If you owe back taxes, seek legal help stating your case, and protect your assets from garnishment.