There are 2 different things we mean when we say we “didn’t do our taxes”. It can mean a person failed to file or that they failed to pay. Those are two different issues with different consequences. Whether that’s from forgetting or simply not being able to, it can be a costly mistake.
No matter what, you have to file your taxes. File for an extension if necessary, but make sure everything is done by the deadline, even if you know you can’t pay or pay in full. Here’s what could happen if you fail to pay your taxes:
1. Penalty fees
If you don’t file on time, you’ll get hit with a penalty of 5% of the tax owed for up to five months and there are additional fees if you file a certain amount of days after the deadline. This comes directly from IRS.gov:
Common penalties include:
- Failure to file – when you don’t file your tax return by the return due date, April 15, or extended due date if an extension to file is requested and approved
- Failure to pay – when you don’t pay the taxes reported on your return in full by the due date, April 15. An extension to file doesn’t extend the time to pay
- Failure to pay proper estimated tax – when you don’t pay enough taxes due for the year with your quarterly estimated tax payments, or through withholding, when required
- Dishonored check – when your bank doesn’t honor your check or other form of payment
All interest could essentially be considered the time value of what you owe and it’s no different with taxes. This could be on top of the penalty fees you owe as well. The rate could vary from 1-6%.
3. Notices from the IRS
The IRS is required to give you a notice before taking any action, and contrary to popular belief, they aren’t waiting to pounce and destroy everything you’ve worked hard for. If you receive (legitimate) mail from the IRS, go ahead and contact them to see if you can work something out. If you need help with this step, contact us at Axiom Tax Resolution Group. Whatever you do, don’t panic and shove the notice somewhere out of sight or throw it away.
4. Forfeited refund
According to Business Insider’s article on filing taxes, “[a forfeited refund] makes sense when you think about it. If you owe the IRS money, the agency is not going to hand over anything until you pay.”
5. Tax liens
This is a claim the IRS makes to your property- house, car, bank accounts, etc. and can even be made to your income which is called wage garnishment. This is a serious, public record notice that you must not ignore. Tax liens can be withdrawn if you enter into a payment plan of sorts with the IRS, which Axiom can help you do. Don’t deal with tax liens on your own, give us a call so we can assist you.
6. Credit report hit
Just like other unpaid paid debt or late payments, it will show up on your credit report. Obviously, that isn’t good for your credit score which could set you back in several areas of life.
7. Seized property
While a lien is the claim to your property, a tax levy is actually the taking of said property. The IRS isn’t going to ruthlessly take everything from you in the middle of the night, but they do have the ability to sell your house or car in order to get the money you owe. There are exceptions and stipulations that you can read about in IRS Publication 594.
8. A summons
This is a legal requirement for you to collect all records and documents and meet with an IRS agent. This may happen if the IRS is having a hard time wading through what you owe and what hasn’t been filed over a longer course of time.
9. Bankruptcy declaration
Declaring bankruptcy isn’t a magical way to escape all of your problems, but it can be a helpful, yet hopefully avoidable way of taking care of your tax debt. Don’t worry…this is not the usual kind of action taken after not filing one time. It is usually for people who are not able to afford paying taxes over a long period of time and don’t have many other options.
What if you CAN’T pay?
You might be thinking, “I’m not a criminal trying to avoid filing my taxes…I just know I can’t pay what I owe and I don’t know what to do!” It is recommended that you still file your taxes even if you can’t pay and then let the IRS know that. Once again, they’re not out to destroy you and in many ways, they can be a big help. Ignoring the problem and hoping it goes away is never the solution for debt. The longer you ignore it, the more fees and interest are going to pile up and the consequences will only get heavier.
If you’re stuck, afraid, and frustrated with tax debt, Axiom can help with tax debt forgiveness programs for your specific situation. We can be the mediator between you and the IRS, if you’re willing to help us help you. Get started today by calling us at 844-8-TAX-PRO (1-844-882-9776).