Tax Time Is Approaching: Debt Collection & Taxes

Coins and calculator on desk

With the holidays and 2020 right around the corner, that means only one thing:

Tax season is upon us!

While there’s still plenty of time to get your own company’s taxes in order, you may be wondering what this time of year means for your debt collection process. Depending on your industry and where your peak season falls, more debt could pile on your accounts in the coming months. You may even have clients who are already past due on their payments and accounts receivables.

So, what can you do about collecting payments at tax time? Now is the time to start planning and preparing!

Can You Intercept a Client’s IRS Tax Return?

For many, a nice tax refund from the IRS is an opportune time to pay bills and other outstanding amounts owed. However, not everyone will use this money to try and get themselves out of debt.

As a collector or business owner, you may be wondering: “Can I intercept someone’s tax refund if they owe me money?”

The short answer: No, you can’t directly request for someone’s tax refund or intercept it from the IRS. In fact, the IRS can only withhold a tax refund when a person owes child or spousal support, owes money to a federal agency, or is past due on their state and federal income taxes.

If you’re wondering what you can do about collecting debt for the 2019 tax season, there are other measures you can take when someone has defaulted on their payments.

Hire a Collections Agency to Step In

While you can’t go to the IRS directly about collecting delinquent debt, you can turn to a collections agency for debt recovery.

Choose an agency that adheres to the Federal Trade Commission and your state’s consumer and debt collection laws. Be sure to understand their methods of debt collection and lean towards an agency that uses friendlier and effective approaches as opposed to more aggressive means.

If you’re unable to connect and collect within a certain period, you can take legal action with the assistance of a collections agency. For example, your agency could help you file a default judgment or take someone to small claims court. In certain cases, you could also request a bank levy.

Encourage Clients to Pay Off Debt This Tax Season

Though you can’t directly collect from the IRS, tax season is an advantageous time to try and connect with your clients. Many may already be looking towards paying off their debt with their tax refund money. And while you may feel eager to pursue legal action on delinquent debtors, consider collecting by other means first.

Remember that some people prefer communicating through text message or email as opposed to over the phone. Send out reminders on an individual basis and connect with them over their preferred method of communication. Doing so during tax season will keep the reminder fresh in their head as they get ready to file their income taxes.

Consider integrating online payments on your company website. The ease and accessibility of this payment method appeals to many consumers, and it also reduces late payments and maximizes your profits going forward. Make it known that you offer online payments this tax season so you’ll remind people of their accounts receivables.

Debt Recovery at Tax Time with Kinum

Connecting with your clients and encouraging them to make their payments is not a one-size-fits-all solution. While there will be clients who are responsive this winter and make full payments upon first contact, you may have some who are unresponsive or drag out the process well past tax season.

Using automated, friendly reminders and a collection schedule, Kinum can help you recover more debt faster and cost-effectively. If legal intervention becomes necessary, we can also help you jumpstart the process at no additional cost. Learn more about our methods of ethical and gentle debt recovery before tax season rolls around!

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