You’ll pay a penalty and interest and may lose your property, among other consequences
It's the height of tax season, and chances are that it's stressing you out. All the hassle and complexity may tempt you to simply skip filing. Before you decide to sit by the pool instead of figuring out what you owe, make sure you know what will happen if you do.
- You'll pay a penalty.
- You'll pay interest.
- The IRS will send you a bill.
- You may get a lien on your house.
- You may lose your passport.
- The government may seize your property with a levy.
- You may have to pay even larger penalties.
- You might have to go to court.
- You might go to prison.
If you file your return on time but don't pay your tax bill in full, the IRS will charge you a penalty of 0.5 percent of the amount you owe every month until you pay. It will do this until the penalty amount reaches 25 percent of the debt.
If you won't be able to pay right away, file your return on time anyway or file an extension. If you do, you might not have to pay the penalty if you've paid 90 percent of the amount you owe by Tax Day.
You'll have to pay interest on what you owe as well as a penalty. At this time the interest rate is four percent.
If you don't file a return, the government will do the math, figure out how much you owe, and send you a bill, and they'll calculate it in such a way that you'll owe more than you would have if you had done it yourself. You may not get credit for your deductions, either, since the government doesn't have access to all of your financial records.
If you get a bill and don't pay it—or if you don't prove to the IRS that it's wrong and you don't actually owe—the agency will then put a lien on your property, usually your house in the event you own one. This usually happens if you owe $10,000 or more and haven't figured out a plan with the IRS to pay it.
A federal tax lien means that, in the event you sell your property, the proceeds from the sale will be used to pay as much of the debt as possible before you receive any of it. The lien will appear on your credit report and will remain there for seven years, even after the debt is paid.
Are you in delinquent debt to the IRS for $50,000 or more? The State Department can revoke your passport or refuse to issue one to you in the first place.
A levy means that the IRS can take your property, garnish your wages, or take the amount you owe straight out of your checking account. Before it does, however, you'll receive mail warning you that you're in default, informing you of your right to a hearing, and explaining that it will take your property if you continue doing nothing.
If the IRS determines that you didn't pay because of negligence or fraud, your penalties can climb to 20 percent or even 75 percent.
If you absolutely refuse to pay or show an intention to defraud the government, it can charge you with one or more felonies.
Most people who owe the government don't go to prison, but some do. Don't be one of them.
The bottom line is that it's a bad idea to refuse to pay your taxes. The IRS is willing to work with you if you can't pay what you owe right away, so talk to the government and figure out a way to work it out. Your life will be much easier if you do.
Source: Wise Bread