The Tax Idiot

The Basics

I have decided to lay out the basics for you here. You can do a deeper dive in all of the formal documents that the IRS provides, but this lays it out in a straight forward, easy to understand format. Remember, I am not a tax expert or giving you any financial or legal advice, just sharing what I have learned.

Expensive Consequences

What happens if you don't file or pay taxes?

If You If you willfully do not pay your taxes, cheat on your taxes, lie on your taxes or simply do not file your taxes, You Could Face Some Expensive Consequences. In The Worst Cases, Your Property Could Be Seized And You Could Go To Jail.

Every American has to file an HONEST tax return every year if he or she earned income that year, even if they don’t owe anything; they could be owed a refund on taxes they already paid throughout the year, or they could find that they owe additional taxes.

But if you If you willfully do not pay your taxes, cheat on your taxes, lie on
your taxes or simply do not file your taxes, then there are a number of serious consequences that could affect you.

What starts out as a bill and a stern letter from the Internal Revenue Service (IRS) becomes a small penalty; the small penalty becomes a large penalty and months of accrued interest. If you still refrain from paying, the IRS obtains a legal claim to your property and assets (“lien”) and, after that, can even seize that property or garnish your wages (“levy”).

In the most serious cases, you can even go to jail for up to five years for every year you committed tax evasion. DO NOT BE AN IDIOT.

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The Failure-to-file Penalties

What happens if you file taxes late?

If You Don't File Your Tax Return By Tax Day) – Unless You File A Tax Extension To The Following October – Then You'll Be Subject To Failure-To-File Penalties. The Failure-To-File Penalties For Federal Taxes Are Currently As Follows:
  • First month late: 5% of your remaining tax liability
  • Second month5% of your remaining tax liability plus a minimum penalty of $435 or 100% of your tax liability, whichever is lesser
  • Third month5% of your remaining tax liability
  • Fourth month5% of your remaining tax liability
  • Fifth month5% of your remaining tax liability

State and local taxes are also subject to additional failure-to-file penalties, which are determined by state law.

If you refrain from filing a tax return because you don’t believe you’ll be able to afford your tax bill, this could cost you in the future. Eventually, the IRS will come calling, and you’ll have to pay up. At that point, you’ll have to file anyway, so you’ll still end up paying the late-filing fees.

Failure to file can also lead to jail time. If you haven’t filed any previous tax returns, call the IRS and let them know. Most of the time, they’re more than happy to walk you through the steps, although you will still probably have to pay the late-filing penalties.

 

Penalties & Interest

What happens if you pay taxes late?

Throughout The Year, You Must Make Estimated Tax Payments To The IRS, Either From Automatically Withholding Them From Your Paycheck (If You're A W-2 Employee) Or By Manually Paying Them (If You're A 1099 Employee).

When you file your tax return, you’ll discover whether your estimated tax payments were enough to cover what you should’ve paid, or if you paid too much. The former results in a tax bill, and the latter results in a refund.

If you owe taxes, you can make a payment as soon as you’re ready. But if you don’t make a payment, the IRS will send you a notice. And if don’t pay that bill, you’ll receive at least one more notice.

In the meantime, the unpaid taxes will start accruing both penalties and interest. Interest starts accruing on the due date stated on the notice, compounding daily to the unpaid balance. The interest rate has hovered between 3% and 5% in recent years; currently, it is 5%. That means if you owe $1,000, you’ll be charged a little more than $4 per month in interest for every month you’re late paying your taxes, in addition to other fees.

You’ll also pay penalties in addition to the interest. Failure-to-pay penalties are 0.5% (one-half of 1%) per month, up to a maximum off 25%, of the unpaid balance.

(As with late-filing penalties, you will have to pay additional interest and penalties on unpaid state and local taxes, the rates of which are set by your state.)

If you continue avoid paying your tax bill, the unpaid amount could come out of future tax refunds if you’re owed any. Beyond that, the IRS can place a lien on your property and assets. The lien could later become a levy, which means the IRS will seize your property to pay your bill.

As with failure to file taxes, you can also go to jail for failure to pay taxes.

If you can’t pay your taxes

If you can’t pay your taxes, you may want to hire a tax attorney if you can. If you can’t, the first thing you need to do is call the IRS. You may be eligible to set up a payment plan called an installment agreement. This allows you to make monthly payments toward what you owe in taxes and avoid the risk of a lien, a levy, or jail time.

The IRS may require you to pay a certain amount of your tax liability before it agrees to an installment agreement. Additionally, you’ll still owe penalties and interest, but the penalty rate is a little lower for people on a payment plan than it is for people who aren’t.

Because some states assess higher penalties and interest rates than others, you may want to pay off your state and local taxes first, then move on to federal taxes. Talk to your state’s department of revenue for more information.

If you miss a payment on the installment agreement, then you’ll owe the whole payment as a lump sum, including penalties and interest.

Making an offer in compromise

An offer in compromise is an agreement with the IRS to lower your full tax liability in exchange for you paying it all off as a lump sum. Typically, an offer in compromise is for low-income workers; you may not be eligible if you earn too much.

Other consequences for paying taxes late

If you don’t pay taxes, sometimes the IRS will summon you to a local office to confirm your information. You may be asked to bring your tax documentation and file a tax return in person.

If you owe at least $54,000 (adjusted yearly for inflation), the government won’t issue you a passport or renew your passport.

In some cases, the IRS may transfer your account to a private collections company. While nobody likes dealing with government bureaucracy, collections companies are typically much more unpleasant to work with and use far more aggressive tactics to get you to pay up.

The Failure-to-file Penalties

I haven't filed or paid taxes in years. What do I do?

The best thing you can do is hire a Tax Attorney IMMEDIATELY

They do this for a living and you are not the first person that has ever fallen behind or not filed or not paid your taxes.  Yes it will cost you money, but DO NOT BE AN IDIOT and think you can smile and make everything better.  There is a process and your attorney will walk you through it.

Paying taxes can be a challenge for people. But that challenge can snowball if, year after year, your tax burden keeps piling up. If you think you owe taxes for multiple years, you need to pay them or you could risk serious consequences.

The IRS can collect taxes up to 10 years after you owed them, with some exceptions for periods during which you lived outside the country, were bankrupt, or were filing for an installment agreement or an offer in compromise.

Here are the steps you should take if you think you owe a lot of back taxes.

Step 01
Get your transcripts from the IRS.

The IRS retains tax transcripts for every year you were earning income, as long as the person paying you reported that income. To find out what the IRS believes you owe, you can request a transcript from them. There are five types:

  • Tax return transcript— Shows which types of tax returns you’ve filed, if any. Lenders may ask to see this when extending you a mortgage or loan.
  • Tax account transcript— Shows data about you, such as whether you file your taxes as an individual or jointly file with your spouse.
  • Record of account transcript— A combination of the tax return transcript and tax account transcript.
  • Wage and income transcript— Shows what the IRS knows about your income and how much you’ve paid in estimated tax.
  • Verification of non-filing letter— Proof that the IRS did not receive your individual tax return.
Step 02
File your taxes.

Collect as many documents as you can, such as prior W2 and 1099 forms. You’re going to need them to file your taxes for prior years. You may need to reach out to old employers, who should still have the documents on file.

 

Finding prior-year tax return forms is surprisingly easy. The IRS keeps a database that goes back to 1864. (The income tax was repealed until it was made into a constitutional amendment in 1913.)

You should also be able to find instructions on how to fill out those tax forms. Tax preparation software may come with plugins for prior years, too.

 

Fill out the tax returns. You’ll discover if you owe money – but you may even be owed a refund, although it could be considerably reduced by years of penalties and interest. File them and pay any tax liability you owe.

At this point, many people enlist the help of a CPA to help manage their taxes and fill out the forms. While a CPA won’t be cheap, he or she can help make sure you’re taking the right deductions and exemptions for each year for which you’re filing back taxes.

If the tax liability is too high for you to afford, then move on to the last step.

Step 03
Call the IRS.

If you owe more than you can afford, call the IRS and set up a payment plan. If you’ve been paying taxes all this time by withholding them from your paycheck, the IRS will be more lenient than it would with someone who tried to dodge taxes all that time.

Tax Lien Vs Tax Levy

If the IRS issues a tax levy to you, then it has the right to seize any property or assets in order to pay your tax debt. But before it issues a levy, it will issue a lien. In fact, the lien automatically attaches to your property if you don’t pay your first bill.

Lien

A lien is a notice the IRS files to your that it has a claim to current property, like your house, your car, your banking or retirement accounts, or to future property, like your wages. It can have a negative effect on your credit score

In order to remove the lien, which is called releasing the lien, you must pay off your full tax liability, plus all the penalties and interest that have accrued, plus any of the IRS’s expenses from filing and releasing it. The lien will also be released if the collection period, which is currently 10 years since the taxes became due, has ended.

You can file an appeal to remove a lien, or what’s called collection due process. Liens can also be withdrawn if you enter into an installment agreement or went bankrupt, or if the IRS didn’t follow the correct procedures. You’ll still need to pay the tax, but the IRS won’t act on the lien while it’s withdrawn.

Levy

The IRS can also seize, or levy, your property to pay off your tax debt, including garnishing your wages or commission, selling your real property or cars, and withdrawing money from your bank accounts.

In most cases, you’ll receive a notice before the levy is enacted, allowing you to pay your taxes or create an installment plan.

When an asset is seized, the IRS will sell it and put the proceeds toward your tax liability. Sometimes, you may still owe taxes on the remaining balance.

As with liens, you can appeal a levy, and a levy will be released when you pay the tax, create an installment agreement, or if it would cause you economic hardship. The IRS may also release a levy if it was issued improperly, or if the collection period ends

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GET IT TAKEN CARE OF ASAP.

Will I Go To Jail For Tax Evasion?

If You Look At It Like YOU WILL GO TO JAIL, It Will Change How You Look At Your Situation And Should Create Urgency For You To Get It Taken Care Of ASAP.

Although the law allows for it, the IRS generally doesn’t prosecute tax evasion. Many people who go to jail for tax evasion owed hundreds of thousands or millions of dollars in back taxes. Others intentionally filed fraudulent returns, or committed other tax crimes like hiring undocumented laborers to work “under the table.”
There is no statute of limitations on tax fraud, but if you weren’t operating a crime ring or underreporting your income, then you’ve simply made the same mistake thousands of Americans make every year.
Taxes can be a frustrating part of civil society, and it’s easy to make a mistake when dealing with large numbers and confusing math – just let the IRS know, and you’ll probably be safe from prison.
Once again, do not risk it. Do not be an idiot and think you will get away with it. It is not worth the risk.