It’s often said that the only things certain in life are death and taxes. But data shows us that the latter half of that saying doesn’t always ring true.
While the majority of the population file their taxes each year, over seven million people fail to do so. It can be tempting to do the same.
No one enjoys giving up some of their hard-earned earnings. But is skipping your taxes actually the best choice? With Tax Day looming closer, you’ll need to make a decision fast.
Read on to learn what happens if you don’t file taxes this year.
Who Does and Doesn’t Have to Pay Taxes
Contrary to popular belief, not everyone has to pay taxes. The U.S. has some important yet little known tax laws in place to protect those who don’t make enough to qualify for a tax bracket.
According to the IRS, those under the age of 65 making less than $12,000 and those over the age of 65 making less than $13,600 aren’t required to file this year.
There are similar rules in place for couples, widowers, and those couples filing separately. If you qualify as any of the above, make sure to consult the IRS’ table, as the gross income requirements are different for each qualification.
It’s also important to note that the tables change each year. As a result, you’ll want to keep up with IRS data.
So where does that leave the rest of the population? Provided you don’t meet the requirements above, yes, you do in fact have to pay taxes.
Common Penalties
But just because U.S. citizens are legally required to pay taxes doesn’t mean that everyone will. You’ll want to think twice before skipping out on your taxes, however. The IRS doesn’t take these actions lightly.
You may be subject to one of two penalties depending on your situation.
Failure-to-File
Should you choose not to file your federal taxes at all, you’ll be subject to the aptly named failure-to-file fee.
This financial penalty begins the day after Tax Day and stacks up over time. At first, the fee is 5% of all unpaid taxes. By the time all is said and done, you may be liable for a 25% penalty on all unpaid taxes.
You may also be subject to a $135 filing fee if you file more than 60 days past the deadline.
Failure-to-Pay
This is a softer penalty than a failure-to-file penalty but can be dangerous all the same.
Typically, those subject to a failure-to-pay penalty will accrue a fee of 1/2 to 1%.
Both penalties can stack up, by the way, so neither situation is ideal.
What Happens If You Don’t File Taxes After Penalties
For the sake of argument, let’s say that you still choose not to file your taxes after reading about the penalties. You’re still not out of the woods, even if the IRS doesn’t reach out immediately.
In fact, things will get much, much worse.
The best case scenario is the IRS garnishing wages from your paycheck to pay off back taxes. And it doesn’t stop there. To make up for past debts, they may seize assets such as personal property.
If you fail to file your taxes and receive a letter from the IRS, don’t ignore it. They aren’t legally required to get a judgment before garnishing wages — they only have to prove they notified you.
So what’s the worst thing that can happen? You could be sued by the government due to tax evasion.
Tax evasion is a criminal offense punishable by jail time as well as garnished wages.
Ways to Avoid Penalties and Fines
By now it’s clear that not paying taxes isn’t a great option. And while tax time is a nightmare for most, it can be quite manageable.
Below you’ll find two easy ways to manage your taxes and avoid paying heavy penalties.
File Early
Though many people dread filing their taxes, the sooner you file, the sooner you’ll get your refund. Therefore, it’s best to file as early as possible.
Each year, millions of people procrastinate and wait until the last possible minute to file. This isn’t a good idea.
Aside from the unneeded pressure, you’ll feel, waiting to pay your taxes means that you’ll likely rush through your forms. If you’re not filing with assistance, you could miss out in crucial deductions that could save you hundreds.
A good rule of thumb is to file shortly after you receive tax forms from your employer. If you’re self-employed, aim to begin around late February or early March to give yourself plenty of time.
Request an Extension
The good news is that the IRS is fairly lenient as long as you’re forthcoming. While you’ll still have to file taxes, you can request an extension if you can’t file by Tax Day. Doing so comes with some important benefits.
Namely, you’ll have up to six months to submit your tax forms. That should give you plenty of time to gather any and all important documents so you can still get a big refund. You can also use this time to make sure your forms are as accurate as possible.
In addition to the added time, filing for an extension will help you avoid those aforementioned fees.
You can still theoretically file your taxes late without requesting an extension. However, by doing so you’d be liable for both failure-to-file and failure-to-pay penalties as mentioned above.
What to Do If You Owe Taxes
If you do owe taxes, don’t worry. Though it’s far from an ideal situation, it doesn’t mean you’re going to jail.
The best thing you can do is contact the IRS immediately. Let them know why you failed to file this year and work with them to come up with a payment plan.
Despite what many people think, the IRS is here to help.
Be Smart and File Today
While it’s fun to ask what happens if you don’t file taxes, actually doing so isn’t a laughing matter. The penalties for failing to file your taxes may not be immediately apparent, but make no mistake, they will catch up to you.
To avoid paying late fees and penalties, file today. Get in touch with Gary M. Kaplan today and get your refund faster.
