The Real Consequences of Not Filing Your Taxes

Tax Day is April 15th every year, but it can be easy to miss the deadline, especially if you’re self-employed or have a complex tax situation. If you don’t file your taxes on time, there are a few things you need to know about the consequences.

Failure to File

The IRS will penalize you for failing to file your taxes on time. The penalty is 5% of the taxes you owe for each month your return is late, up to a maximum of 25%. However, if you don’t file within 60 days of the due date, the minimum penalty is $210 or 100% of your unpaid tax, whichever is less.

Failure to Pay

If you don’t pay your taxes on time, the IRS will also penalize you. The penalty is 0.5% of the taxes you owe for each month your payment is late, up to a maximum of 25%. However, interest will also accrue on your unpaid taxes, starting the day after the due date. The interest rate is the federal short-term interest rate plus 3%.

First Time Penalty Abatement

If you’re a first-time offender, you may be eligible to have your first penalty waived. To be eligible, you must meet the following requirements:

• You were not required to file a return before you did not receive a penalty for the previous 3 years.
• You filed any required returns or filed an extension for all previous years.
• You paid or set up a payment plan for any tax due.

The 90% Rule

Most years, if you have paid 90% of your balance due on Tax Day, the IRS will not penalize you for failing to pay proper estimated taxes. However, for 2023, if you paid at least 80% of your tax liability through paycheck withholdings, quarterly estimated tax payments, or a combination of the two, you would not face any IRS penalties.

What’s the Worst That Can Happen?

If you don’t file your taxes or file for an extension, the IRS can:

• Accrue penalties up to 25% of the taxes you owe.
• Garnish your wages.
• Place liens on your property.
• Even send you to jail.

What to Do if You Can’t File or Pay on Time

If you can’t file or pay your taxes on time, the most important thing to do is to contact the IRS as soon as possible. There are a number of options available to help you, including:

• Filing an extension: This will give you more time to file your return, but you will still owe interest on any unpaid taxes.
• Setting up a payment plan: This will allow you to pay your taxes over time, but you will still owe interest and penalties.
• Applying for an Offer in Compromise: This is a program that allows you to settle your tax debt for less than you owe.

Conclusion

The best thing to do is to file and pay your taxes on time to avoid building up penalties and interest. However, if you can’t file or pay on time, there are a number of options available to help you.