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Will Your Life Be Ruined If You Don't File Your Taxes

According to the Internal Revenue Service, everyone with income above a certain level is required to file a federal income tax return.  Even our brave servicemen and servicewomen have to deal with military tax preparation. The specific income you must earn in order to be required to file a tax return varies depending upon your age, your filing status and the type of income that you receive. The instructions on Form 1040, 1040A or 1040EZ will help you to determine whether you are required to file a tax return or not.

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The IRS Also indicates that many people may not be required to file a tax return but may wish to file one anyway. For example, those who have had federal income tax withheld from their paychecks may wish to file a tax return in order to get an income tax refund. People who are eligible for tax credits including the Making Work Pay Credit; the Earned Income Tax Credit; Child Tax Credits; the American Opportunity Credit; the First Time Homebuyer Credit; and the Health Coverage tax credit may also wish to file an income tax return.

When you are required to file a return and you fail to do so, there can be consequences and penalties associated with that decision.

The Consequences of Not Filing Your Tax Return

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If you were not required to file a tax return, you face no penalties if you did not complete and send a return to the IRS. However, you may not receive refunds or tax credits that you were eligible for if you do not file to let the IRS know that you expect the money.

If you were required to file a return, on the other hand, and/or you income taxes to the Internal Revenue Service, you face a number of potential consequences if you fail to file.  The Internal Revenue Service has a page on its website outlining the consequences of a failure to file a past due tax return.

According to the IRS, those who are required to file a return, whose return is past due, and who do not file the return or contact the Internal Revenue Service could face:

  • Penalties and interest. There will be penalties charged on the amount of tax that is due that you did not pay to the IRS.
  • The IRS filing a substitute return on your behalf. If you haven’t filed and the IRS knows you owe taxes, the agency will essentially complete a return for you in order to calculate your tax liability and the amount due (penalties and interest, of course, will be charged on top of the amount that is due).   When the Internal Revenue Service completes and files a substitute return on your behalf, the agency completes the return only with information they have from other sources such as 1099 information submitted by employers. As such, the IRS may not include any expense deductions or exemptions that you may have been eligible for and that you could have included if you had filed your own tax return. Your tax liability may be significantly overstated and you could end up with a big tax bill --- especially once late fees and penalties are factored in.

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After your tax liability has been calculated by the IRS using a substitute return, then the IRS can begin collection efforts against you. The IRS can also begin these collection efforts if you have sent in a return (on time or late) that did not include payment of your tax liability, interest and penalties.  The collection process can include:

  • Placing a levy on your wages. This means that the IRS will actually get a garnishment order so that money that you are paid from your employer will go directly to the IRS instead of into your pocketbook. You will never see the money as it is deducted directly from your paycheck before your salary or earnings are paid out to you.
  • Placing a levy on your bank accounts. This means that the IRS stakes a claim to your assets in the bank.
  • Filing a federal tax lien against your property. A lien is a claim of ownership that the IRS places on the property, indicating that when the house is sold, the IRS will get a portion of the money. A lien on your property can make it very difficult for you to sell the property as there will not be clean title to the property. When the property is sold, a portion of the money from the sale will be paid directly to the IRS.

In some cases, the penalties can go beyond just financial ones.  If you are found to have engaged in willful tax evasion, this is a federal crime and you could face prosecution and jail time. 

The consequences are very serious and you should make sure that you ALWAYS pay your taxes. 

Larry Rosenberg is a certified public accountant that specilizes in helping individuals and businesses with tax problems. When larry is not helping people with their tax issues he enjoys kayaking and fishing.

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