What happens if you don’t pay taxes?
There is a difference between failing to file and failure to pay taxes. If you’re owed a refund or if you don’t owe taxes, you’re not required to file your taxes. And, if you do file late, no penalty is assessed. However, if you’re owed a refund and don’t file within three years of that particular tax date, the IRS gets to keep your money.
However, filing your taxes on time is still the most important thing to do. If you can’t get your taxes filed before or by midnight on Tax Day, you’ll need to file for an extension. But, it’s important to remember that, if you’re filing for an extension, that’s only for filing your tax forms. The IRS still expects you to pay what you owe on time.
What happens if you don’t pay taxes? Ignoring the IRS is not an option! If you completely neglect to pay your taxes, the government has a legal right to start garnishing your wages, to place liens on your property, and begin a discussion concerning possible jail time
Compounding reasons to pay your taxes on time
It can actually cost you more in assessed penalties for failure to file vs failure to pay. If you fail to file your return on time and you owe taxes, the IRS can and will penalize you a late filing fee. This year the late-filing penalty is 5% of taxes due for each month or part of a month that your return is late. The maximum penalty is 25%. If you don’t file within 60 days of the Tax Day date, the minimum penalty is $210 or 100% of your unpaid taxes, whichever is less.
If you fail to pay your taxes on time, you’re not only assessed a penalty, but interest will accrue on the amount you owe the IRS. For each month past the payment date, the IRS will assess a penalty of 0.5% of your total tax bill; the penalty maxes out at 25%.
Interest on your unpaid taxes begins to accrue one day after the money is due, and that interest will compound daily until your tax bill is paid in full. The interest rate the IRS will charge you is the Federal short-term interest rate plus an additional 3%. However, this rate is set every three months, so if it goes up, your interest rate increases, as well.
By paying on time as much as possible, you can reduce the penalty as well as the amount of interest you’ll have to pay.
A mistake you won’t make twice
The best thing you can do to avoid any of the above scenarios is to file and pay your taxes as soon as you possibly can to avoid the penalties and the interest that will accrue if you don’t.
One sure way to avoid making these costly mistakes is by working with an accountant. A personal CPA can work with you throughout the year so that you’re several steps ahead of the game when it comes to your taxes.
At GYL CPAs and Advisors, we can help you maximize your opportunities while helping you to limit your liabilities. Our goal is to help you keep more and pay less. Contact our office today to schedule a free consultation.