Tax season might seem eons away, but the choices we make during our year can hugely affect the amount we owe to the IRS. If you’ve got a lingering tax debt owed to the government, there are a bevy of consequences that are likely right outside your door. If you ignore the issue and continue to remain indebted to the IRS, rest assured that they will take action, and swiftly. From persistent phone calls and post notices to actual property seizure and jail time, the IRS works to get back what it’s owed. If you owe money to the government, it’s important to understand the realities of your situation and work as quickly as possible to rectify the situation.
When the Notices Begin
If you’re hoping to slip past the IRS unnoticed, don’t hold your breath. They will see your debt, and they will get in touch with you sooner than you think. If you haven’t paid your tax debt and haven’t already received a written notice in the mail or a barrage of phone calls, expect it soon. If you don’t file or send in payment, the IRS will starting sending out notices, which will provide you with 30 days or 60 days to get in contact with the IRS. Once you do receive a notice, call as quickly as possible. The IRS will be much more lenient with people who are making an obvious effort to resolve their debts, and the quicker you get in contact with the right people, the sooner you can figure out a way to pay off what is owed.
You’ll Pay More in the Long Run
The longer you take to pay back your debt, the more you can expect to pay overall. The IRS enforces strict penalty fees and interest fees, and these increase with every month that passes. Should you fail to file your taxes in the first place, the penalty is 5 percent of your debt, and increases for five months after the due date. This can increase depending on situation and the amount of time it takes you to pay off your account. Beyond penalties, your account will also accrue some major interest, resulting in a much larger bill than you began with. Keep in mind that this interest rate can rise over time; it’s determined on a quarterly basis and might see your total bill compounded daily. This interest can reach up to 4 to 7 percent more, which can quickly exacerbate an already hard-to-pay-off debt. Sometimes, it’s easiest to simply put your tax debt on a low interest rate credit card from Capital One to deal with easier interest rates and fewer penalties; think of it as the lesser of two evils.
The Likelihood of Incarceration
It’s a rarity to be sure, but some taxpayers do face jail time for their failure to pay what they owe to the government. If you repeatedly fail to pay back taxes, and ignore the IRS’s attempts to secure your debt, incarceration could be your reality. This is usually more likely in cases where taxpayers file fraudulent returns to avoid paying what they owe in attempts to hide extra income.
A Property Seizure
A tax levy is the government’s claim to your assets, and the seizure of any personal property they need to settle your debt. This goes far beyond money seizure; when you owe the IRS, they can come after your home, your car, your bank account, and even your bank account. You’ll receive multiple notices before the government actually swoops into to lay claim to your property, and you may have success by proving that your debt causes too much of a financial hardship for you to handle, although this isn’t a common occurrence.
Choosing the Right Course of Action
Fielding calls and letters from the IRS can be overwhelming, and if you’re desperate to find a solution to pay off your debt, it’s in your best interest to work with a professional. A tax preparer from a company like Community Tax can work with you to determine the best course of action for your individual circumstances; this might mean requesting an installment agreement, applying for an offer in compromise, or by some other means. This will help you dig your way out of debt sooner and equip you with the knowledge and education to ensure you don’t fall into this situation again, whether that be through budgeting help or saving means.