Do You Know What Actually Happens When You Don’t Pay Taxes?
We know what happens when celebrities don’t pay their taxes. They get all their money taken away and/or go to jail. But this is usually the case after owing millions of dollars. We’re not really in the same boat, but not paying your taxes does have consequences.
I Didn’t Have it So I Didn’t Pay. What Now?
This is a common question and a common problem. Taxpayers in the U.S. were short almost $400 billion on income taxes back in 2006. Did all these people go to jail? Of course not. Since 2006, more Americans have been short on their taxes. We don’t always have the money to pay the government what it says we owe in taxes, so what are we supposed to do?
The IRS Isn’t as Cold-Hearted as it Seems
Believe it or not, the Internal Revenue Service (IRS) is actually very willing to work with taxpayers who legitimately are having financial trouble and can’t handle their tax bills. As long as you can prove that you don’t have the resources, you and the IRS can come up with a plan. BUT, HERE’S THE CATCH: If you want the IRS on your side when you can’t pay your taxes, you need to reach out to them first. The answer is NOT refusing to file your tax return. This can definitely lead to trouble, like late fees for owed taxes and failure-to-file-fees, both of which accumulate interest. Not filing your taxes is not the same as not paying your taxes and can have harsh consequences.
Even if You Can’t Pay, File Anyway
Failure-to-file fees are more than late fees for not paying on time. If you don’t have the money, you may want to file an extension, which can get you 120 extra days. This isn’t a sure thing though. If you want the IRS to give you the extension and waive any late fees, you’ll have to prove that you absolutely didn’t have the money to pay on time.
Aside from an extension, you may want to consider an installment plan, where you’ll be able to pay your tax bill over the course of up to 72 months (as long as you owe less than $50,000 for one tax year). You can still be charged interest for these monthly payments, however.
In the End…
The IRS may not be the most organized of government entities but this does not mean you can get away with not filing, filing late, or not paying. They will figure it out eventually and you’ll be in more trouble for it. They best way to avoid penalties down the line is to work with a professional to prepare your tax return and recommend the best options if you’re unable to pay what you owe.