As the saying goes, nothing is certain except death and taxes. Trying to avoid either one never seems to end well. Ideally, by April 15 every year, you will have paid all of your taxes. Maybe you’ll even be eligible for a refund.
However, if you have let your tax payments slip past the deadline, you could face serious consequences that could include penalties and interest, the seizure of your property, wage garnishment, frozen bank accounts, or even time in prison. Ignoring the problem won’t make it go away! Please keep in mind that MoneyLion does not give tax advice. Please consult with a tax advisor if you have questions about your individual situation. With that in mind, here are some general rules of thumb for paying your taxes.
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No one likes taxes, but you still have to pay them
The best plan when it comes to taxes is to plan ahead. Often, when you work for someone else, the employer pays at least some taxes on your behalf by taking money out of your paychecks, although those deductions may not pay your entire bill. And some employers do not withhold any taxes.
If you are self-employed with your own business or work as a contractor, you will need to put your own money aside and make estimated tax payments every four months. Plan accordingly so that you have the funds to pay your taxes throughout the year. The Financial Heartbeat tool from MoneyLion can help you make sure you stick with your budget and stay on top of your tax payments.
Penalties for late filing or payments
You can incur penalties for failure to file, failure to pay, and failure to pay proper estimated tax. It can add up fast.
But these penalties are just the beginning. If you incur enough unpaid taxes, especially over years, you can even face criminal charges for tax evasion and serve jail time. Here are some of the other potential consequences if you owe IRS taxes.
If you fail to file or pay your taxes on time, the IRS can garnish your wages. IRS wage garnishment refers to the legal procedure in which a court orders your employer to withhold earnings to pay a debt. In this case, the IRS can order wage garnishment to cover your tax-related debt.
IRS bank levy
Like wage garnishment, an IRS bank levy is a legal means for the IRS to seize your financial assets. This includes wages, vehicles, real estate, and other personal property. An IRS bank levy is the effect of failing to pay taxes.
If you are unable to pay your taxes on time or you refuse to do so, you might end up facing a tax lien on your home as the result of your unpaid taxes. This lien protects the government’s interest and represents property of value that is equal to the debt you owe. The best way to clear a federal tax lien is to pay your tax debt in full as soon as possible.
IRS can use or hold your tax refunds
If you don’t pay your taxes, the IRS can use your expected tax refunds to pay your tax bill until it’s fully paid off. This means that in addition to the interest that you’ll accrue on top of other penalties and consequences, you will not receive any expected tax refunds until your debt is paid.
In extreme cases, the IRS can seize your property for unpaid taxes and then sell it. In this case, the IRS will calculate a minimum fair market value for bidding. After payment of costs related to the sale and the tax debt itself, you can apply for a refund if there is any money left.
Options to help pay your taxes
Again, please be aware that MoneyLion doesn’t provide advice on taxes. For that, you should talk to a tax expert. Here are some topics to discuss with that expert.
File payment extension
If you are not going to be able to file your tax return by the deadline, ask about how to extend your filing time with IRS Form 4868. Remember that the amount you owe in taxes is still due on time, even if you file for an extension.
Apply for an installment agreement
A low-cost personal loan may be an option. In other cases, you may decide to apply for an installment agreement. The installment agreement with the IRS will indicate your goodwill and your promise to pay your tax-related debt. The payment plan can be requested via Form 9465 or through the online option. Think about a side hustle that involves working a few hours a week as one way to put money away for the bill you know is coming due. Ideally, we all plan ahead to ensure that we can meet our tax liabilities. There is no way around it, the IRS will come for the money.
Can I go to jail for not paying my taxes?
Yes, in some cases. If you take any action to avoid an assessment of taxes, or if you don’t file a return, you can end up going to prison. You can face anywhere from one to five years in prison for avoiding an assessment, or one year in prison for each year that you fail to file a tax return.
What happens if you don’t pay taxes for 5 years?
You can face penalties, fines, interest, liens, or property seizure. You might also face criminal charges. If you haven’t paid taxes in five years, use the tips above to make a plan to clear the tax debt as quickly as possible.