Forgetting to file your taxes or refusing the pay the amount that you owe in taxes can result in certain penalties. Depending on your actions and the situation, the penalties and consequences that you face may vary.
Failure to File Penalty
The penalty for failing to file your taxes by April 15th or the extended date if you applied for an extension is harsher than the penalty for failing to pay what you owe. You will be charged a percentage of the amount you owe until you file and pay the full amount.
Filing your taxes late will result in a 5 percent charge for every one month that you are late. It will not exceed 25 percent of your taxes.
Failure to Pay Penalty
If you file your taxes, then you will usually face a much lower penalty for your failure to pay the full amount that you owe. The IRS suggests that you pay as much as possible, even if you cannot pay the full amount, because it will reduce the penalty that you will be charged.
The penalty for failing to file your taxes is 0.05 percent, or half a percent, of the amount that you owe. The fee is added each month, so every month that you fail to pay your taxes will result in an additional 0.05 percent charge.
Exceptions to the Fees
The only time that you will not be charged additional fees is if you can prove to the IRS that you were not able to file the paperwork for a legitimate reason. You must prove that you were not negligent, which will require documentation showing that you were unable to file taxes.
IRS Actions
If you fail to file your taxes on time and refuse to pay, then penalties are added to your account. Initially, the IRS will add interest to your account each month and you will have the opportunity to set up a payment plan or a schedule with the IRS.
Setting up a payment plan with the IRS will not prevent you from facing additional charges. You may still be charged interest on your payment schedule, but the amount that you are charged may be less than the late penalties or the failure to file penalties. The IRS can work out a solution if you show that there is a reasonable cause for your failure to file or your inability to pay the full amount.
Failing to set up a payment plan or a strategy with the IRS may result in additional consequences. The IRS may garnish your wages if you continue to refuse to pay your taxes. Garnished wages will result in a gradual payment of your taxes, but interest may still be added ot the account.
Beyond garnishing your wages, you may also face a tax lien that is applied to your property. The lien will mean that the IRS can foreclose on your property if you fail to pay according to your agreement.
It is important to file your taxes on time and ensure that you pay the full amount as soon as you can to avoid high penalties and unnecessary consequences. Depending on your situation, options may be available to help you get your paperwork filed on time and ensure that your tax liability is as low as possible.
Sources: http://www.irs.gov/uac/Failure-to-File-or-Pay-Penalties:-Eight-Facts, http://www.irs.gov/taxtopics/tc201.html, http://www.irs.gov/pub/irs-pdf/p4849.pdf
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