There are many things in life you can ignore. Taxes simply aren’t one of them. If you fail to file or pay owed taxes, you can expect to experience consequences, some of which might be pretty serious.
Understanding the Difference Between Not Filing and Not Paying
There are more than a few people each year who blow off their taxes and don’t file. Either they think it won’t catch up with them or they miss the deadline and choose to wait until next year. On the other side of the fence are the people who seem like they’re doing the responsible thing by filing, but once they get their tax bill, they tuck their tail and run the other way.
Failing to file your taxes and failing to pay what is owed are two different things that have separate consequences. Both, however, come with the possibility of having a levy placed against your bank accounts, which means your money will be frozen. Thankfully, there are ways to have a levy lifted.
- If you skip out on filing your taxes, you can expect a penalty of 5% on the amount you owe. Each month you don’t file after the deadline, this penalty increases by another 5% and can increase up to 25%. You’ll also get slapped with a late filing fee of at least $135 if the deadline has passed by more than 60 days.
- If you’re part of the somewhat responsible crowd and you filed your taxes but failed to pay what was owed, then you’ll receive a failure-to-pay penalty. This fee starts out at 0.5% of the amount you owe and increases up to 25%. In addition, you’ll be responsible for paying interest on the amount you owe.
You Could Go to Jail
The government does not take failing to file or pay taxes lightly. And it doesn’t matter who you are — there’s no get-out-of-jail-free card for people who ignore their tax liabilities. Teresa and Joe Giudice, Wesley Snipes, and Ja Rule are but a few celebrities who spent time behind bars for tax evasion.
Keep Yourself Out of Jail by Following These Simple Tips
You don’t have to be a rocket scientist to stay out of jail for your tax liabilities. The easiest way to keep yourself out of trouble for tax-related issues is to, of course, file your taxes every year and pay what is owed. It’s understandable, though, that you might not have the cash on hand to cover an unexpectedly large tax bill; this is why the government is generous about setting up payment plans.
Any time you fail to file your taxes or get behind on paying what you owe, the smartest move is to contact the IRS. If you explain your situation and give them an amount of what you can afford to pay, most times they will work with you.
Communication is key to avoiding the consequences of ignoring your taxes. Everyone gets in a pinch from time to time, but being in a tax pinch is not a place you want to be.
- Self-Employed 401K: Retirement and Tax Savings Tool for Small Businesses
- Life Changes and Its Effect on Your Taxes
- How to Prepare for the Upcoming Tax Season
- How to Maintain an Efficient Filing System
- 10 Common Home Office Mistakes