What Happens If You Fail to Pay Your Taxes

The Internal Revenue Service will not let you off the hook if you fail to pay your taxes! You can avoid a situation like this if you pay your taxes timely throughout the year instead of waiting for April 15. Generally, employees have taxes withheld from their salaries. However, freelancers or self-employed people can pay taxes every three months directly to the IRS.

If you need more information on income taxes, consult with the Agro Accounting CPA experts or hire our income tax services for the self-employed. Here, let’s start with the possible outcomes of not paying your taxes on time:

Pay a Penalty Fee

Are you failing to file your taxes or failing to pay your taxes? There’s a huge difference between the two.

If you fail to file your taxes by the due date, there will be a penalty of 5% of the tax owed for up to five months. If you take longer than 60 days after the due date, then you will get hit with a minimum penalty of $210 or 100% of the tax owed, whichever is lower. For example, if the tax owed is $210 or less, the penalty will be the same as the total tax amount due. If the tax amount exceeds $210, the penalty will be at least $210.

Warning Letters from the IRS

Nobody wants mail from the Internal Revenue Service. It's not like the IRS doesn't give you a chance - it gives many. But before taking any strict legal action, they send you a warning letter.

The best thing to do after getting a letter is to reach out to the IRS office. The authorities might look kindly on you as you admit your carelessness, unlike those who have been lining their cat’s litter box with the IRS’ letters. You may get a chance to negotiate a payment plan or even reduce the total tax amount due.

Can’t Apply for a Loan

If you fail to pay your income taxes, you might get into a lot of trouble. You may not be able to apply for a home loan, business loan, or vehicle loan. Banks or lenders need to see copies of your most recent tax returns before giving you a loan. Nobody gives a loan to someone who isn't consistent with filing or paying their tax returns.

The IRS Can Seize Your Property

In Publication 594, the IRS has made it clear that the agency can sell your car or property in order to clear out your outstanding tax in some scenarios. The publication also states that if there is money left after the sale of your property, you will get a refund of it.

To learn more about taxes or to obtain a tax preparation guide for artists and entrepreneurs, feel free to connect with Agro Accounting CPA.