IRS Warnings: The scary consequences of failing to file your taxes

At times, some people believe that they can do best under pressure that comes with doing things the last minute. Often, such people find themselves procrastinating on important tasks like filing taxes. There is a significant portion of the population who simply forget to file their tax returns by the deadline. On the other hand, there are those who deliberately avoid filing their returns.

The IRS does not tolerate those who fail to file their taxes. They have very stringent measures against defaulters. For a taxpayer, it is essential to ensure you’re file on time. Avoiding tax regulations can result in costly consequences. Here are some scary consequences of failing to file your taxes within a timely manner.

Late penalties

It is fair to expect some penalty for failing to file your taxes. Notably, the penalty for late filing of your tax returns takes effect immediately after the April 15 deadline. It typically amounts to 5 percent of the unpaid taxes you owe for every month you delay filing your returns. Conversely, a less hefty penalty of up to 1 percent of the unpaid taxes per month applies to taxpayers who file by the deadline.

If you are not capable of paying your taxes, it is still vital to file your taxes on time. Taxpayers who both file late and fail to pay get an additional 5 percent charge of their unpaid taxes as penalties. Naturally, this applies to every month the bill is late.

Delayed reimbursement

As established, taxpayers who wait too late to file their taxes and claim their refund may get a late filing penalty. Additionally, failing to get the tax refund may prove a huge inconvenience if you have financial plans. For instance, it may turn out to be a massive problem if you have plans to use the refund for vacation. By failing to file your taxes, one prolongs this financial injustice against your wallet. You give up the ability to save or invest that money at a higher return by failing to file on time. No vacation for you.

Substitute for return

Individuals who do not submit their tax return before the deadline are not in the clear, yet. The IRS will attempt to contact negligent tax filers repeatedly. IRS agents are tasked with this in hopes of convincing negligent filers, or simply reminding ones who forgot, to file their tax returns to alleviate fines and penalties.

If their efforts fail, the agency can file a substitute for return (SFR) on behalf of the tax filer. It calculates the amount of taxes owed based on taxable income. Any applicable penalties are added to the sum. The IRS may also use payments made to self-employed individuals and dividends paid on investments in the calculation.

Nevertheless, the IRS does not conduct an SRF in filers’ best interests. After all, SRFs do not consider tax credits and deductions that may reduce your taxable income. This implies that you may be overpaying on your taxes. You can still file your tax return to claim your deductions and expenses. However, this is only possible if you receive a bill from the IRS indicating that it performed an SRF. Mostly, the IRS will make the appropriate corrections.

Give up your Social Security

Social Security concession is one of the most severe consequences of failing to file your tax returns. Through the Federal Payment Levy Program, the IRS can target certain assets after going through the appropriate notification process. Even though it cannot devastate your ability to earn money, take your work tools or appropriate benefits like those paid to your children, Social Security is one thing the IRS can seize. This may prove difficult to cope with in your old age. Social Security is a gift for your decades of service to the country. This means that you ought to avoid what may restrict your access to this safety net you’ve paid into.

Arrest

Most notably, there are horrible consequences for ignoring an IRS bill including, in extreme cases, arrest and prosecution. After sending multiple warning letters to defaulting taxpayers, the IRS will send a representative or business to collect payment. Typically, this is done if the taxpayer owes over $25,000. In the worst case, a taxpayer who consistently dodges their IRS payments will be sentenced to no more than five years in prison for tax evasion.

Automatic wage garnishments and seizure of your assets like your car may be more lenient measures taken by the IRS. At Mount Bonnell Advisors, we can give you more advice about avoiding the consequences of failing to pay or file taxes on time.