Common Reasons for Tax Problems

It is important to understand the reasons for the tax problems and their underlying causes. If you have a tax issue, do not forget the ultimate goals that you have for the Tax Resolution and Financial Freedom process. You should be trying to deal with your tax problems and replacing the problematic financial behaviors with positive ones. This process requires accountability, so be honest with yourself. Now is not the time to dwell on past mistakes. You need to use the knowledge of past mistakes or uncontrollable circumstances as a motivator to guide you along the process of change.

Here is a review of some of the most common events or circumstances that may lead to tax trouble:

· Self-employment- Not understanding the self employment tax or simply neglecting to pay estimated taxes for self-employment income

· Tax protestor

· Failure to pay employment taxes or payroll taxes

· Taxation of Retirement Distributions

· Capital gains reporting related to the sale of stocks, bonds, mutual funds, etc.

· Changes related to an audit

· Insufficient taxes withheld from pay (W-4)

· Loss of job or income reduction

· Cash flow problems related to living beyond your means

· Poor financial management

· Not having enough money set aside for emergencies

· Divorce or other personal problems

· Business failure

· Health problems, medical emergencies; physical and mental problems

A Growing Problem

Tax debt is a financial problem that will only create more trouble if not dealt with quickly and appropriately. More and more people are facing tax liabilities that will have a long-lasting effect on the financial well being and quality of life for people choosing to ignore their tax issues. Tax liabilities do more than create financial stress. Tax problems can affect your emotional and physical well-being. Tax debt also tears apart relationships and marriages. Financial differences are frequently cited as the number one reason that couples get divorced.

If you don’t deal with your IRS tax problems in a timely manner, any of the following could occur:

· The IRS can levy (seize) your bank account and take your money out of the bank.

· The IRS can file a notice of levy with your employer to levy your wages, salary, and other income. They can take a substantial amount of your paycheck. This also tells your employer that you have a problem with the IRS. The IRS also enforces collection against your 401(k) and other retirement accounts.

· Penalties and interest will continue to accrue.

· The IRS can levy (seize) your assets and sell them at public auction to satisfy your tax liability.

· With court approval, the IRS can levy (seize) your residence and sell it at public auction to satisfy your tax liability.

· The IRS can issue a summons to third parties such as your bank, credit union, employer, and others to determine assets or property owned by you.

· The IRS can issue a summons to you requiring you to appear, testify or produce books, papers, records, or other data.

· The IRS can file a Notice of Federal Tax Lien, which is public notice of a lien in favor of the United States on all property and rights to property belonging to you.

· Tax related stress may also lead to physical and psychological problems. Financial problems are often cited as the number one reason couples seek a divorce.

Tax problems come in all shapes and sizes. It is important to have a solid understanding of the reasons for tax debt. It is also essential to understand the potential consequences of tax debt. The solution to tax debt is to establish a tax resolution plan.

About the author

Scott M. Spann, CFP®, EA

Scott Spann CFP®, EA is a Fee Only financial life planner and the founder of LifeSpan Financial Planning, LLC located in Charleston, South Carolina. Scott has been providing financial planning advice for a diverse group of clients since 2000. He is a Fee-Only financial life planner practitioner with a strong orientation in areas of tax planning and financial life planning. Scott also specializes in investment planning, retirement planning, college planning, tax planning and incorporating life planning into the financial planning process. Scott is committed to the Fee-Only model of financial planning.

Scott is originally from Greenville, South Carolina and has called the Lowcountry his home since graduating from the College of Charleston in 1997. He began his financial planning career in 2000 after completing graduate studies at The Citadel (MA, 1999) in the field of psychology. This academic background helped shape his vision to help his clients make the smartest decisions possible with their money in a client-centered relationship. Scott completed his advanced financial planning studies at the College for Financial Planning.

Scott is a member of the Nation Association of Personal Financial Advisors (NAPFA), the Financial Planning Association (FPA), and the National Association of Enrolled Agents (NAEA). In addition to promoting Fee Only financial planning, Scott also devotes a significant amount of time promoting financial literacy and recently volunteered with Your Money Bus. He is a frequent guest on the Money Matters Radio Show on 94.3 WSC FM in Charleston, South Carolina where he provides financial planning advice to listeners. Scott also provides free financial counseling to military service members as part of the Department of Defense's Financial Readiness Program.

One Comment

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  • Good point B.J.! It’s a sangrte hybrid of being here, but not being of here. I find it easy to forget to be here sometimes.

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