Filing federal taxes can induce panic in even the most prepared people. Understanding your tax liability is a challenge and a mistake can result in fines and other serious problems. That being said, these consequences generally pale in comparison to the issues that can arise if you fail to file your taxes.
Not filing your tax return can lead to heavy fines and even criminal charges. This post will explain what can happen if you do not file your taxes and the steps that you can take to avoid more penalties.
What can happen if you fail to file your taxes?
The IRS has many punishments which they can use to make people file and pay taxes, including:
- Interest and fines on taxes: If a person fails to file or pay their taxes on time, they will receive both fines and interest on their unpaid taxes. The interest rate for unpaid taxes currently sits at four percent and compounds daily. The fines for not filing and paying taxes accumulate every month at five percent of the owed taxes. These fines cap out at 47.5% of the total of the owed taxes.
- Garnished wages and seizures: If you fail to file or pay taxes the IRS can garnish your wages and use levies and liens to seize your property. IRS wage garnishments are exempt from many state and federal limitations, which means that they can leave you with only enough money for basic necessities.
- Criminal charges: If a person fails to file or pay their taxes and ignores attempts to communicate with the IRS, they can face criminal tax evasion charges. If convicted, you can receive up to five years in prison and $250,000 in fines.
- Ending government benefits: Not filing your taxes can cause your passport to be revoked, end federal educational loans and may impact other benefits that you receive from the U.S. government.
If the government owes you taxes, they may not pursue you for not filing. Everyone should still file their taxes because the IRS will keep the owed refunds after three years.
If you failed to file your taxes, what should you do?
If you did not file your taxes, the first thing you should do is compile all tax paperwork and IRS notices that you have received. In some instances, a person can get an extension and file their taxes before there are more punishments. You may be able to work out an agreement, called an Offer in Compromise, which lets you settle your debts by paying off part of the total amount.
Filing your taxes is challenging, especially if you have complex assets or circumstances that prevented you from going through the process. Do not ignore the problem and be proactive about getting knowledgeable help. A tax attorney can assess your situation and give you a plan for how to best file your taxes.