What actually happens to those lawless Americans who either forget or flat out refuse to file their taxes?
The simple answer is it’s nothing good. In fact, after doing some digging, I’m pretty sure you’d be better off filling out your forms in crayon than sitting on your hands and letting the IRS have at you.
“Doing nothing is the worst thing,” says Mike Smith, President of our very own B & J Bookkeeping & Taxes. “Let’s just say you inadvertently forgot, which is hard to believe but does happen, then by the time you remember, after the due date, you’re looking at some significant penalties and interest, particularly if you have a large balance due.”
Strike 1: Failure to file. This fee is ten times harsher than the late payment penalty and starts at five percent for each month or partial month you’re behind. Wait more than 60 days after Tax Day to file, and the least you’ll pay is whichever of these two options is smaller: $135 or 100% of your unpaid balance. The only bright side here is that the whole fee is capped at 25% of whatever you owe.
Strike 2: Failure to pay. On top of the aforementioned penalty, you’ll get popped with a 0.5% fee on your unpaid taxes every month until the balance is paid. The fee doubles if the IRS issues a letter demanding immediate payment.
Your only way out: You’re going to have to come up with a better excuse than a sick day. Per the IRS: “you will not have to pay a failure-to-file or failure-to-pay penalty if you can show that you failed to file or pay on time because of reasonable cause and not because of willful neglect.”
And don’t kid yourself into thinking you’re off the hook if a month goes by and no IRS lackeys come calling. “It can take anywhere from six months to a year for the agency to catch up to late payers,” Mike says.
If you’re reading this now, it would be wise for you to file ASAP. Otherwise, you’ll have a lot more than a dented bank account to worry about, including possible jail time for some tax evaders.
And if you’ve decided to ignore Uncle Sam because you think you won’t be able to afford your payment, you’re better off at least knowing what you’re up against. There are plenty of refund estimate tools available which will give you an idea of what you’ll owe or be owed.
Once you’ve got that number – no matter how stomach-turning it might be – file as soon as possible.