We’ve all had the same thought at least once while working through our taxes– what if we just stopped?
Filing personal income taxes can be stressful, complicated, and overall just a major chore. In fact, 56% of Americans say that they dislike or hate the process of doing their taxes.
For some, taxes can be a substantial financial burden. Others just hate the complicated process. Whatever the reason, you can’t be blamed for wondering what might happen if you were to skip doing them this year altogether.
However, if you don’t pay your taxes, you could see some serious actions taken against you. The IRS is the government branch that deals with taxation, and they are known to take several actions against tax evaders.
If you’re curious about what happens to an individual who is not paying taxes, read on: we’ll cover eight major things you should know.
1. There Is A Penalty If You Don’t File
When it comes to tax evasion, there are actually two different steps of the process where one can attempt to slip the system. Some individuals file their taxes and then don’t pay, but others just don’t file at all.
Different penalties exist depending on your situation. If you don’t file your taxes, you can be hit with a failure-to-file penalty. A failure-to-file penalty is 5% of your unpaid taxes for each month your tax return is late, with a max percentage topping off at 25%.
Also, if you file your taxes more than sixty days past the deadline, you’ll be forced to 100% of the taxes you owe up front.
2. There Is A Penalty If You Don’t Pay
But let’s say you did file your taxes, but never got around to sending the government a check for what you owed. Would the penalty remain the same?
No, actually. A failure-to-pay penalty is a different beast, and typically far less severe. Generally speaking, the IRS will charge 0.5 percent of your unpaid taxes for each month you don’t pay, again topping off at 25%. Unpaid taxes also accrue interest over this time, at the federal short-term rate.
Even if you’re only a couple of months behind on your taxes, the costs can easily begin to add up. While it may be tough to fork over your hard-earned money, it’s much better to think smart about how to save than not to pay altogether.
3. Not Filing Might Cause You To Lose Money
Many Americans attempt to avoid filing their taxes because they are worried about giving more of their income to the government. But this isn’t always the case with filing. If you don’t look into your financials, you may not realize that you’re actually due for a big refund.
The IRS has reported that they have about 1.1 billion dollars worth of unclaimed tax refunds that are waiting to be claimed. That’s an average of $700 a person. Avoiding filing your taxes might mean that you’re missing out on quite a paycheck.
4. The IRS Wants You To Come Forward
Tax evasion is a criminal act under US law. Though you’ve probably heard stories about big-time criminals or executives being brought in for tax evasion, it doesn’t take large sums of money to create a criminal charge.
Intentional avoidance of paying taxes, in any amount by anyone, is considered a criminal act in the eye of the law. That being said, the IRS does not have a policy of bringing criminal charges against citizens unless they have to. They’re much more interested in encouraging individuals to come forward and pay up voluntarily.
They offer payment plans instead of convictions and attempt to get citizens to cooperate instead of sending them to jail.
5. If You Don’t Cooperate, Actions Will Be Taken
If you ignore the issue and do nothing, the IRS will be forced to take actions to collect your taxes. These actions can be varied and incredibly strict. The IRS has the right to make a claim to or seize your property, which can include vehicles, house, boat and even your work wages.
They can make you forfeit your tax refund, and even revoke your passport. These actions can be serious and life-debilitating, which is, of course, their intention.
6. You Can Be Audited
The IRS does not have to know how much an individual owes to convict them of tax evasion. With that in mind, the IRS typically prefers to charge an individual after performing an audit of their financial situation.
If a tax collector or IRS representative has a reason to suspect underpayment or avoidance of tax payments, it can begin to stage a primary investigation to find evidence to prove this claim. From this audit, the IRS will decide whether to proceed with filing criminal charges against the individual.
7. Tax Evasion Can Land You In Jail
The severity of the Justice Department’s Tax Division varies by case and situation. The severity of the punishment for tax evasion depends on several factors, including how much money is owed to the government and how long the individual has avoided paying.
An individual could face up to five years in prison or a fine of up to $250,000 if they are convicted for tax evasion in a court of law. Though punishments typically aren’t this severe, failing to or lying about your taxes can still land you in some serious trouble.
8. You Can Get An Offer In Compromise
While punishments for tax evasion can be severe, the IRS and Justice Department typically attempt to work with taxpayers towards an ending that can be happier for both parties.
Sometimes, the court will suggest an Offer In Compromise, which is a settlement offer that is made to the IRS for less than what is actually owed. You pay up immediately, and the IRS forgives the rest of your debt.
There are different strict eligibility requirements when it comes to getting an OIC, including proving full payment of your taxes will result in “incredible hardship.”
It can be helpful to have a law firm such as Austin & Larson Tax Resolution on your side when negotiating with the IRS for such compromises. Tax laws can be tricky, and having legal help on your side is always recommended.
Not Paying Taxes Can Mean Trouble
There are some pretty stiff penalties out there for people who are not paying taxes. While filing can be stressful and paying can be financially burdensome, it’s better just to pay up than risk the many penalties that could come your way.
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