Whether you simply forgot to pay last year’s income taxes or you knowingly avoided the arduous task, you should know the potential penalties that accompany this issue. While many people strive to file their taxes by the tax deadline, a number of others procrastinate and fail to submit them at all.
Yet, there are serious penalties for those who do not file their taxes. With more than 143 million taxpayers across the United States, it is important to understand what the penalties are and what you can do to avoid such a situation.
Incurring debt
If you do not file and pay taxes owed to the Internal Revenue Service, representatives will tack on a penalty fee. According to IRS.gov, a penalty for ‘failure to file’ is 5% of the unpaid amount. For example, if you owed $3,000 in federal taxes, the penalty would include an additional $150. Another 5% is charged every month the amount goes unpaid for up to five months.
Damaging credit
In addition to additional fees, your credit score will take a hit. Depending on the amount owed, the federal government could put a tax lien on your property. Although they will not necessarily repossess the property and/or assets, they will claim ownership of them. If you try to sell the property, the IRS can collect the money you receive.
Failure to pay taxes can result in a decreased credit score, which can make it difficult for you to secure housing and loans later down the road.
Committing tax fraud also comes with hefty penalties, including jail time and increased fines.