Pull out your shoebox of receipts and clear your calendar. Tax filing season is here.
But what happens if you don’t file your taxes? Will the IRS really even notice?
Um, yes. Even if you don’t file, your boss, mortgage company and bank are reporting forms to the IRS with your name and Social Security number.
Once the IRS catches up, the consequences can range from mildly annoying to your-life-will-never-be-the-same-again.
Following is a look at exactly what could happen if you fail to pay your taxes.
1. You could get hit with penalties
IRS penalties can include:
- Failure-to-file penalty: If you don’t file taxes, the IRS generally charges 5 percent of the amount owed for each month or part of a month that a return is late.
- Failure-to-pay penalty: If you file a return but don’t pay the taxes due, your penalty is generally 0.5 percent of your outstanding balance for every month or part of a month that you don’t pay.
- Interest: On top of the fines, you’ll pay interest — at the federal short-term rate plus 3 percent, compounded daily — on the amount you owe.
A good piece of software makes tax time easier. Here are “The 5 Best Tax Software Programs for 2019.”
2. You could forfeit your refund
If you have a refund coming but don’t get around to filing, your refund can disappear. For you to receive a refund, the IRS generally requires you to file the corresponding return within three years of its due date.
3. The government could put a tax lien on your property
Once the IRS is done playing nice, the agency will start to do things that really make life difficult. First, they assess a federal tax lien — a claim against your home, personal property or financial accounts.
A tax lien is like the government claiming dibs on something of value you own. They aren’t taking your assets yet but are saying they could. Meanwhile, a lien can make it difficult to sell or refinance your home.
4. The government may seize your assets
The next step after a lien is a levy. After putting a claim — the lien — on your property, the government uses a levy to take it.
If you get a notice of intent to levy, do not ignore it. Scrape together whatever money you can find and call the IRS to make a payment arrangement. Otherwise, federal agents can seize your house, car, boat or investments to pay your tax debt.
5. The government can garnish your income
It isn’t just your current assets the IRS can seize. It can institute a wage levy, taking your paycheck.
The amount the IRS can take exceeds what other debt collectors are allowed and depends on a formula that takes into account your income, dependents and amount owed. In some cases, you might be left with less than $500 a week to live on.
The IRS can even take 15 percent of Social Security retirement payments to pay off tax debts.
6. Anyone can find out about your debt
It’s bad enough to be in debt; it’s worse when other people know. And a tax lien is a public record — meaning that not only can lenders find it, but potential landlords and employers can, too.
7. The IRS will summon you
At some point after sending you notices, including an Information Document Request, the IRS may issue a summons to obtain information from you or compel your testimony to help with their investigation, according to Brager Tax Law Group, a law firm in the Los Angeles area.
If you get a summons, get an excellent tax attorney to accompany you to the meeting and do most of the talking.
8. You might have to file for bankruptcy
Let’s take this to its logical end. You didn’t or couldn’t pay your taxes so you were charged penalties and interest. The government swooped in and collected your assets. Then they started garnishing your checks. Now, you don’t have enough left over each week to pay the bills. Where does this end for you? In bankruptcy court.
However, this might not be the end, as filling for bankruptcy protection does not remove prior tax liens, says legal website Nolo. In certain circumstances, such as if you failed to file a return, filing for bankruptcy may not even wipe out all your tax debt.
9. You could go to jail
What is the most awful thing that can happen if you don’t pay your taxes? You could go to jail.
Now, granted, you have to be really trying hard to get sentenced for tax evasion. The IRS doesn’t lock up folks who are simply having trouble paying their bill. H&R Block says that the people who find themselves facing criminal charges are those who willfully try to defraud the government and refuse to cooperate during the collections process.
What’s your take on these possible consequences of failing to file or pay your taxes? Sound off below or over on our Facebook page.