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9 Ways Not Paying the IRS Could Hurt Your Finances
Sometimes circumstances occur that have an impact on finances and can cause debts to mount. Owing money to the IRS can seem like an overwhelming problem, but ignoring debts can make the situation much worse. Here are some ways not paying your taxes could hurt your finances and how you can get relief.
Failure to File Penalties
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The penalty for failing to file a tax return is 5% of your unpaid taxes for every month your tax return is late. The amount is capped at 25%, but if you file more than 60 days after the deadline, you will be liable for a minimum of $135. The exception is if you owe less than that, in which case you will pay 100% of your total tax owed in penalties.
A Penalty for Filing Your Return But Not Paying Your Taxes
There are much smaller penalties for failing to pay your taxes if you still file your return. Generally, the sum will be 0.5% of the tax money owed for each month you fail to pay, up to a total of 25%. Addressing your late payment as soon as possible can keep your costs down significantly.
Interest on Unpaid Tax
The IRS calculates interest on unpaid taxes at the federal short-term rate, plus 3%. When added to penalties for failing to file, filing late, and paying late, this can amount to a substantial sum.
A Federal Tax Lien
A tax lien is a claim on your property to recoup the money owed. The IRS can place a lien on the assets of someone who has failed to pay their taxes, allowing the agency to retain that property until the debt is paid. Usually, you can only remove a lien by paying your back taxes.
The IRS can penalize you for not paying your taxes in a number of other ways, including:
- Asset seizure: If it appears that you are not going to make payments, your assets can be removed and sold to pay off your debt.
- A levy on your wages: The IRS can collect unpaid taxes directly from your salary.
- Refund forfeit: Any refund you may have been due will be canceled.
- Criminal charges: You can face prosecution for tax evasion.
- Passport revocation: Your passport may be revoked to prevent you from leaving the country.
What If You Can't Pay Your Taxes?
The IRS offers various support packages for those who cannot pay their taxes, including repayment plans such as the Fresh Start Program. You can also contact a professional tax expert for advice and help managing your debts in the most effective way. Ignoring your debts will not make them go away, but seeking expert advice could help reduce them and your penalties.
Unexpected situations such as losing a job or facing an illness can adversely affect your finances and ability to pay taxes. You can avoid sanctions by being honest about your circumstances, getting professional help, and engaging with the support offered.
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