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What Happens if You Don’t File Taxes?

Legal Assistant Resources, Tax Law

Every US citizen has a legal obligation to file their tax returns every year – whether or not you owe anything to the IRS. That’s just how the law is set up. Besides, you might just find that Uncle Sam has a tax refund waiting for you. And who doesn’t like having a little extra cash in their pocket, much less when you least expect it.

That aside, if you miss the April 15 deadline and end up filing your taxes late or not filing at all, the good news is – it’s not the end of the world. Nonetheless, you still have to contend with the financial ramifications that come with it.

So, what happens if you don’t file taxes? Here’s everything you need to know.

What Happens if You File Taxes Late

First, let’s explore how the tax system in the country works. Throughout the year, the IRS expects you to provide an estimate of your tax payments. This can be done in one of two ways:

  1. By automatically withholding the taxes due from your paycheck if you’re a W-2 employee; or,
  2. By paying them manually if you’re a 1099 entity

When the time comes to file your annual return, you might find that your estimated payments exceed what you should have paid, or in other instances, fall short of what you owe the IRS. The former results in a tax refund while the latter results in a tax bill.

Now, if you find that you owe money, you need to pay the amount displayed on the tax bill as soon as you can. If you don’t, you will receive a demand notice from the IRS. If you still fail to make the payment, the IRS will send you at least one extra notice before taking further action against you.

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Penalty for Filing Taxes Late

Any unpaid taxes you have will begin to accrue interest and penalties. Interest is calculated from the due date stated on the notice you received. This amount could vary anywhere between 3% and 5% of the outstanding balance. So, if you owe $1,000 in back taxes, you can expect to be charged between $3 and $5 every month until you settle the tax bill.

There is also a failure-to-pay penalty that’s levied in addition to the interest due. This is calculated at 0.5% of the outstanding balance every month, up to a maximum of 25%. Keep in mind that you may also have to pay additional interest and penalties for unpaid local and state taxes. These are calculated at rates set by the local and state authorities.

What Happens if You Don’t Pay Taxes?

If you continue to ignore the tax bill and fail to settle the amount due, the IRS will offset any outstanding amount from future tax refunds you might be entitled to. Additionally, they could also place a lien on any property or assets in your name.

This could later evolve into a levy. So, the IRS has the legal right to seize your property to settle your outstanding tax bill.

You could also go to jail for failing to pay taxes, but the likelihood of this happening is slim. Unless you somehow owe hundreds of thousands of dollars in back taxes, then all bets are off. If you somehow got lucky and skipped paying your taxes for several years, there’s a 10-year statute of limitations on collecting unpaid taxes.

Penalty for Not Filing 1099

If you’re a business owner and you provide an incorrect tax statement otherwise referred to as “intentional disregard,” the IRS penalizes you $550 for every 1099 with no annual limit.

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As for the late filing of 1099s, the penalty ranges between $50 and $270 for every 1099 up to a maximum of $1,113,000 per year. The exact amount you’ll have to pay depends on how late you file and whether or not the IRS classifies you as a small business. Businesses with an annual turnover of $5 million or less are generally regarded as such.

What Is Tax Evasion?

It’s one thing to file your taxes late. Tax evasion, on the other hand, is a whole other ball game. So, what is considered tax evasion?

If an individual or entity deliberately avoids paying their tax liability, that would be tantamount to tax evasion. The keyword here is “deliberately.”

The definition also extends to the deliberate underpayment of taxes due, based on the IRS information from third parties through 1099s or W-2s from an individual’s employer.

Tax Avoidance vs Tax Evasion

Both tax evasion and tax avoidance have somewhat similar definitions. In the latter, an individual uses legal means to minimize the tax obligations due, while the former relies on fraudulent means.

Tax evasion penalties may be of a civil or criminal nature. Civil liabilities may result in a 75% penalty of the amount due.

Criminal penalties, on the other hand, might be a combination of fines totaling up to $250,000 for individual tax evaders or up to $500,000 for corporations. It may also result in a prison term of up to five years behind bars.

Tax Debt Relief

Sometimes, life happens, and you just can’t afford to pay off your tax debt. The good news is – the IRS can forgive your debt.

debt concept

The government would first examine your current financial situation to determine what you can reasonably pay. If it finds that any collection action would result in you facing a financial crisis and losing any financial security you currently have, you would be eligible for debt forgiveness.

Get the Best Legal Help

Now that you know what happens if you don’t file taxes, the best thing to do would be to settle any outstanding tax debt you might have. That way, you avoid accumulating unnecessary interest and penalties to the point it threatens your financial wellbeing.

If the IRS has contacted you over tax issues, or you’re currently facing tax fraud charges, you’ll need to find a tax attorney as soon as possible. They’ll help protect your rights and hold your hand through every stage of the litigation process.

If you still need help figuring out where to get started, you can also chat online with a Laws101.com attorney today.