What Happens If You Don’t File Your Taxes?
For regular workers, tax season can be a time of financial abundance. A big return can mean money toward a vacation, some much-needed home repair, or just about anything else you’ve been putting off. Freelancers, though, face the opposite challenge. Since many freelancers don’t pay their taxes as they go (i.e., out of each pay check), they often end the financial year owning quite a bit of money.
As a result, some will wind up putting off the inevitable — and some might even take a big risk and not file at all.
Though reports of who does and doesn’t pay taxes are often mired in political rhetoric, it’s true that most Americans do file their taxes. So if you think the government simply won’t notice if you don’t file, you’re incorrect.
It’s also true that the IRL is extremely financially strapped this year, which does mean there will be fewer audits than in more robust years. However, audits almost never happen for the financial year in question; instead, they happen several years later. Which means just because you won’t get audited this year doesn’t mean you won’t get audited for this year in the future.
All of which is to say: It’s a good idea not to skip the festivities of April 15.
But what happens if you don’t file your taxes?
First off, know that the government will track you down. Not paying taxes is much, much riskier than filing them poorly or inaccurately, because it’s relatively easy to see who just hasn’t paid.
Second, know that even if you can’t pay, you should definitely file. If you file but don’t pay, you’ll be hit with fewer fines and additional charges, and can probably even figure out a payment plan (the IRS has one here). The IRS is much kinder to those who do file, so you’ll be doing yourself a huge favor just by filing.
If you file by April 15 and can’t pay, you’ll be subject to a penalty fee of 0.25% per month, as long as you are, in fact, planning to pay.
If you file 60 days late or more, you’re looking at a $135 fine or 100% of what you owe, whichever is less — which, if you’re a freelancer, will definitely be $135.
But if you don’t file at all? Yikes.
If you don’t file and don’t pay, expect to be charged a fee for every month you’re not ponying up. The monthly fee for filing late or not filing at all is 5% of the amount you owe, though that caps out at 25%. So at most, you’ll end up paying a quarter of what you owe on top of what you owe, based on that fee alone. But there’s more.
If you fail to file and pay and the government has to come after you for more money, you can have your wages garnished and even face jail time.
The bottom line is this: Not filing your taxes is your worst option, even if you’re up to your eyeballs in freelance debt. Be savvy about your deductions, and, if you’re really in bad shape, contact the IRS to see if you can pay in increments. You might be charges a small amount more, but the fees and fines won’t be nearly as dramatic as if you skip the process altogether.
Freelance, Small Business, LLC: Should You Do Your Own Taxes?
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