Benjamin Franklin is quoted as saying “In this world, nothing can be said to be certain, except death and taxes,” when writing about the New Constitution in a letter to Jean-Baptiste Leroy in 1789. This is true wherever you might live in the world and is especially true if you happen to run a business. If you run a business in the US, the amount of tax and which taxes you pay depends on the type of business you’re running.
The tax rules in the US are a little complicated, and it can be difficult to know which ones you have to pay. If you run a business, however big or small, it’s vital you understand your tax obligations and make payments on time. Failure to pay your taxes can be a serious matter, and you might need the help of an experienced attorney. There are a number of things that can happen should you fail to file your tax returns on time.
The Difference Between Not Filing and Not Paying
Not filing and not paying your taxes are two completely separate things and as such the penalties are different. You face a failure-to-file penalty if you don’t file your taxes and it will cost you more in the long run. This penalty is 5% of your unpaid taxes for each month your tax return is late. The maximum amount is 25%. If you leave filing your taxes for longer than 60 days, the minimum penalty is $135 or 100% of the taxes you owe, whichever is less. Another downside of not filing is that you may miss out on a refund. With the average refund amounting to around $700 and the IRS holding more than $1 billion in unclaimed refunds that’s a lot of money, you could have a share of.
If you file but then don’t pay, you’ll be charged with a failure-to-pay penalty which is much less. For every month you don’t pay the IRS will charge you 0.5% of your unpaid taxes, up to a maximum of 25%. As well as paying the penalty, any unpaid taxes also accrue interest that is the same as the federal short-term rate, plus 3%.
When money is tight the sensible thing to do is file your taxes, as the penalty for not filing is ten times more than the failure-to-pay penalty. It’s always possible to speak with the IRS and apply for a payment plan to resolve your tax debt.
Continuing to ignore your taxes has even more severe consequences, including more fees to pay. As well as charging you additional fees you risk the IRS having a claim on your property, seizing your property, forfeiting your refund, being charged with tax evasion, or having your passport revoked. Worst-case scenario you could end up in jail.
What Could Happen if You Continually Ignore Your Taxes
Several things could happen if you continue to ignore your taxes. They include:
- Pay Interest – as well as having to pay a penalty you’ll also be charged interest on any taxes you owe. The interest amount is usually based on the federal short-term rate which ranges from 1% to 4%, plus an additional 3% on top.
- Receive Notices from the IRS – the IRS are obliged to give you numerous opportunities to file and pay your taxes, so you’ll receive regular notices advising you of your obligations. Before they can take any action against you, a notice has to be sent to you, and you have between 30 and 60 days to reply. Don’t be tempted to file this notice in the drawer and forget about it. When you receive it, get in touch with the IRS immediately and try to organize a payment plan.
- Forfeit Your Refund – the IRS can keep hold of any refund you might be entitled to if you choose not to pay your taxes on time.
- Social Security Seized – Your assets are at risk if you fail to pay your taxes, thanks to something called the Federal Payment Levy Program. Certain things are safe such as your work tools or benefits paid to your children. However, social security payments you might be receiving are at risk.
- Federal Tax Lien – a Lien is a public declaration of the IRS’s claim to your property and isn’t something you can ignore.
- Damage to Your Credit Report – unpaid IRS debt appears in your credit report much like any other outstanding debt.
- Property Seized – when a Lien is issued the IRS can claim any of your property unless you’re suffering economic hardship and any seizures would impact on your ability to meet basic, reasonable living expenses. It could mean, however, that your house, care, income or bank account are appropriated.
- Receive a Summons – if the IRS is struggling to get money from you for your taxes you could receive a summons and be required to meet with an IRS officer. You will have to provide relevant records and documents. You may also be required to testify.
- Declared Bankrupt – you might be failing to pay your taxes because you can’t afford to. Sometimes people who can’t pay their taxes file for bankruptcy because they think any tax debt will be discharged. This isn’t the case, and the IRS will just suspend the debt and look for ways to collect it after bankruptcy.
- Serve Time in Jail – one last possibility is that you spend time in jail because it’s felt that you’ve willfully failed to file or filed fraudulent returns. This is considered to be an attempt to defraud the government. You could be criminally charged with tax evasion, prosecuted and sentenced in a criminal proceeding. Part of the criminal charging process will be the requirement to appear in court. Bail could also be posted, and you need to be aware of what you’re getting into if you think jumping bail is the answer. This article will explain more.
You should know that any tax debt you have is not going to disappear overnight and be forgotten about. The government has the right to pursue unpaid taxes for ten years. Some appeals and exceptions can be made, depending on your circumstances, but be prepared for plenty of communications with the IRS if you decide you don’t want to pay.
published gloucestercitynews.net | April 15, 2019