What Can Happen If You Don’t Pay Your Taxes
Tax season isn’t necessarily the most enjoyable time of year. Coming quick on the heels of the holiday season, paying the taxes owed can feel impossible. However, ignoring your tax bill is a surefire way to ruin your finances and your children’s future. If you’re concerned you won’t be able to pay what you owe this upcoming year, or you’re sitting on an old IRS debt, take the following to consideration.
Expect Some Mail
If you ignore your tax responsibility, prepare for an onslaught of mail from the IRS. If you don’t file or don’t pay your taxes, you’ll begin to receive IRS notices. Most of these require response within 30 to 60 days. The worst thing you can do is ignore an IRS notice. They’re willing to work with you to come up with some sort of solution; after all, they’ll do anything to ensure they receive their money. Every notice will include a number you can call, so be sure to get in contact with the powers that be as quickly as possible. The sooner you can begin forming a plan to pay off what you owe, the more lenient the IRS is sure to be. Speak with a tax professional and take a look at the Community Tax fresh start initiative plans to see how you might be able to garner a deal with the government agency before the consequences get any worse.
Prepare to Pay More
Like any debt, the longer it takes you to pay off what you owe, the more you’re going to pay in the long run—a whole lot more than you would have originally. The IRS enforces some pretty hefty penalties, and when you combine interest charges with monthly late fees, your debt can expand exponentially. The longer it takes to pay off, the worse the consequences get. Interest compounds daily and will accumulate on the amount you owe; keep in mind that the interest rate is equal to whatever the Federal short-term rate is at the time, plus an added 3 percent.
In terms of late payment penalties, each month you’ll tack on an additional .05 percent, which increases every month the taxes go unpaid. This can continue up until a maximum late penalty of 25 percent.
If you simply don’t have the money, consider paying off your tax bill with a credit card. While you’re essentially trading one debt for another, being indebted to a credit card company is generally more favorable than owing money to the federal government. Often, you can find credit cards that offer fairly low interest rates, much less than what you’ll pay in late fees and interest to the IRS. American Express offers low interest credit cards that you can use to pay your tax bill.
Consequences Reach Far Beyond Late Fees
The longer you take to pay off what you owe, the worse the consequences will be. Beyond late fees and interest rates, you’ll face other scary possibilities if you continue to ignore the IRS.
While jail time due to unpaid taxes is rare, it does happen on occasion. This is usually seen in cases in which a taxpayer attempts to file a fraudulent return to avoid paying taxes on extra income. However, it’s important to acknowledge that incarceration is a possibility.
If the IRS decides to use a tax lien against you, it means they’re laying claim to your assets, including anything they can seize to settle the debt you owe. This could be against real estate, cars, and your bank account. If a tax lien is ignored, and payment still hasn’t been made, a tax levy occurs—this is the actual seizure of your property. The government can deplete your bank account, take money from your paycheck, and take ownership over your belongings.
Whether you choose to file for an offer in compromise, negotiate an installment agreement, or place your debt on a credit card to get out from under the IRS, it’s important to take action as soon as possible. Once you’ve handled this debt, be proactive about the future. Be sure you improve your budgeting processes with personal budget software to ensure you never find yourself in this situation again and stay on the government’s good side.