It’s the time of year everyone dreads: tax season. Sometimes, you end up having to cough up extra cash to pay Uncle Sam at the end of the year.
So, what happens if you don’t pay your taxes and you leave that unpaid bill sitting due?
Read on to find out what could happen to you, and what you should do to avoid dealing with the dreaded IRS.
Penalties and Fees Will Add Up
You should know that if you don’t file your taxes at all, you’ll face a serious failure-to-file penalty that accrues five percent of your unpaid taxes for every month your return is late. This can reach up to 25 percent and you’ll also be hit with a minimum of $135 or the full 100-percent of what you owe.
Not only that, but you could also owe extra interest on the unpaid amount. The IRS keeps really good records of what is due, and those fees and interest can really add up the longer you wait to file.
It goes without saying that you should go ahead and file those taxes, even if you expect to owe money at the end of the day. You might end up with even more penalties if you fail to file at all, so get going!
Regardless of your situation, if you owe taxes you can expect to see notices arrive in the mail around a month to three months after the IRS realizes you owe. Those notices will increase if you ignore them, so it’s a good idea to call the IRS as soon as you receive them.
When you talk to a representative, let them know you’re aware of the notice and that you’re working to pay it back. Most of the time, you can set up a payment plan so you don’t have to fork everything over all at once.
What Happens If You Don’t Pay Your Taxes: Liens and Collection Calls
Let’s say you’ve decided to ignore the IRS or you just never got notice until a few months later. What happens now? Well, the IRS might decide to file a legal claim against your property and any financial assets you own.
This practice can be extremely scary, and the government may end up being entitled to some of your money through investments or sales of any assets you own. This can happen anywhere from a few days after the notice is sent to a few months, so you really never know when to expect it.
A lien is a public record which means it can affect your chances of getting a personal loan or a mortgage. It might even have a negative effect on you getting a job or holding onto your security clearance.
Another serious issue with liens is that they don’t disappear after bankruptcy, so it’s best to avoid them in the first place. You might also end up dealing with a ton of collection calls. Those calls will come from a private collection agency and never from the IRS themselves.
If you end up with a bank levy, you could lose your entire paycheck every week or month. Use this service to help you fight the IRS and get the problem corrected so you still have money in the bank at the end of the day.
Things Can Get Really Serious
If you really want to know what happens if you don’t pay your taxes after an extended period of time, you should understand that things can get downright scary. The IRS might issue a lien against your home, or they could garnish your wages or drain your bank account.
You could even lose out on Social Security payments, and this process can happen a lot faster than you think. The IRS even has the power to take your vehicle and put it on the auction block to turn the profit into a payment.
Even things like your 401(k) can be affected if you don’t pay the taxes that you owe. Planning on taking an exotic vacation? Think again if you owe taxes.
The IRS can work with the State Department and refuse to renew your passport or issue you a new one. In fact, they could even revoke it so you’re not allowed to leave the country under any circumstance.
If you’re this far along in the process of owing the IRS, it’s probably a good idea to talk to a professional tax attorney. But if you want to avoid these problems from the get-go, communication is key.
Contact the IRS as soon as you receive your first notice that money is due. The sooner you talk to them and make a plan, the better off you’ll be.
As for the future, always make sure you’re filing everything correctly and that you’re putting enough money aside for anything you may owe at the end of the year. Talk to your employer about any current withholdings and hire a CPA to help you if you’re self-employed.
Plan Ahead to Avoid IRS Woes
Now that you know what happens if you don’t pay your taxes, you’ll be more inclined to have your ducks in a row. Make sure you file on time and pay what you owe or make arrangments to pay it off when possible.
The sooner you address these problems, the better off you’ll be.
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