Failing to file your taxes can affect you both legally and financially. Despite the misconception that the IRS doesn’t enforce tax filing for everyone, they actually do actively pursue non-filers. And it’s not just for big earners; even someone with a low income is required to file taxes, and they could miss out on valuable credits and refunds if they don’t.
Although it is possible to file past-due tax returns yourself, it can be stressful, but the process can be made simpler by getting yourself a tax attorney or other legal tax expert. According to a tax attorney in Jacksonville, FL, your tax attorney can provide you with other options for limiting or erasing your tax debt. When negotiating tax settlements, they can also help you decide if a penalty abatement, an offer in compromise, or payment through installment agreements is best for your situation.
Even if you are unable to pay your tax debt, you should discuss your options. There are ways to settle or lower your tax debt, and waiting to file can have a snowball effect, increasing the penalties, fees, and other consequences from the IRS.
Financial Penalties and Interest Charges
If you fail to file your taxes on time, you’ll incur financial penalties and interest charges. The IRS imposes penalties for both failing to file and failing to pay your taxes on time.
- The penalty for not filing is typically more severe than for not paying. It amounts to 5% of the unpaid taxes for each month your return is late, up to a maximum of 25%.
- If you file on time but don’t pay all your taxes, the penalty is 0.5% of the unpaid taxes per month.
- The IRS also charges interest on any unpaid taxes. The interest rate is variable and typically higher than what you’d pay on a standard loan.
These financial penalties and interest charges can quickly add up, so file your taxes immediately to avoid further financial strain.
IRS Audits and Legal Action
If the IRS suspects non-compliance, they can initiate an audit to review your financial records thoroughly. During an audit, they’ll examine your income, deductions, and credits claimed to ensure accuracy.
Failure to cooperate or provide the requested documentation can worsen the situation. If discrepancies or intentional tax evasion are discovered, legal actions like fines, liens on your property, or even criminal charges could follow. To quickly address any IRS audit and mitigate further consequences, you may seek professional assistance from a tax attorney or accountant to help you with the audit process effectively.
Loss of Refunds and Tax Credits
When you fail to file your taxes, you miss out on refunds that could have been returned to you. These refunds are interest-free loans that you’ve given to the government throughout the year. By not filing, you forfeit the opportunity to claim that money back.
Not just that. If you don’t file, you won’t be able to benefit from tax credits such as the Earned Income Tax Credit or the Child Tax Credit, which can reduce the amount of tax you owe or even give you a refund. You could end up owing more in taxes than you actually should, resulting in unnecessary financial strain, and missing out on tax credits can also mean missing opportunities to improve your financial situation or cover essential expenses.
Damage to Credit Score
When you fail to file your taxes, the IRS may file a substitute return on your behalf. This substitute return typically doesn’t include any deductions or credits you might be eligible for. As a result, you could end up owing more taxes than if you’d filed yourself.
Unpaid taxes can lead to tax liens, which are public records of your debt. These liens can show up on your credit report and seriously lower your credit score. A lower credit score can make it more challenging to secure loans, credit cards, or favorable interest rates in the future. Tax liens also stay on your credit report for up to seven years, adding to your financial reputation.
To avoid damaging your credit score due to unfiled taxes, resolve any outstanding tax obligations quickly. Filing your taxes on time and setting up a payment plan if needed can help mitigate the negative consequences for your creditworthiness.
Potential Criminal Charges
The failure to file taxes is considered a serious offense by the Internal Revenue Service (IRS). If you intentionally evade paying taxes or file fraudulent returns, you could face criminal charges that may result in fines, penalties, and even imprisonment.
Tax evasion is a federal crime where you deliberately avoid paying your taxes through illegal means. If the IRS suspects that you have committed tax evasion, they can launch a criminal investigation into your finances. This could lead to charges of tax fraud, which are punishable by hefty fines and possible incarceration.
The consequences of facing criminal charges for not filing your taxes can have long-lasting effects on your personal and financial well-being. Always remember to fulfill your tax obligations to avoid legal troubles and maintain your integrity in the eyes of the law.
Conclusion
If you don’t file your taxes, you could face serious consequences. Financial penalties, interest charges, IRS audits, and legal action are all possibilities. You may also miss out on refunds and tax credits, damage your credit score, and even face potential criminal charges. So, stay on top of your taxes to avoid these negative outcomes. Take the necessary steps to file your taxes on time and accurately to avoid any complications in the future.
