Taxation not only pays for public goods and services; it also plays an important role in the social compact that exists between citizens and the economy. The manner in which taxes are collected and spent can define a government’s very legitimacy.
Therefore, you’ll find yourself in trouble if you don’t pay your taxes or skip filing your tax altogether. The government has the authority to forcibly seize your assets if you don’t try to make good on your income tax liability.
In the most extreme situations, you may be subject to jail time.There are a number of scenarios that can lead to penalties and interest charges. The two main ones are filing your tax return late and paying your taxes late.
Filing Your Taxes
If you won’t be able to file your tax return by the deadline, you can request an extension by filing Form 4868 to the IRS by the due date, which is usually April 15th. It’s crucial to note that submitting this form does not provide you a time extension to pay your tax debt. You still have until the deadline to send any money you owe. According to Invest Opedia, this is the case.
You will be fined if you file your tax return late or not at all, according to the Internal Revenue Service. You will be fined if you do not file. These penalties are levied against returns that are not filed by the deadline. However, for each month or portion of a month that a tax return is late, a penalty of 5% of the unpaid taxes is levied. The failure-to-file penalty increases to 25% of the unpaid tax amount after five months.
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Paying Your Taxes Late
You may be tempted to file your tax return but fail to pay the money owed. If you do not pay your taxes by the due date, you will begin to incur interest and penalties on the outstanding amount.
According to the South African Reserve Bank, the failure-to-pay interest rate is the federal short-term rate + 3%, compounded daily after the due date, whether or not you seek an extension of time to file your return. The maximum penalty for failing to file and failure to pay is 47.5 percent of your total tax due 22.5 percent for late filing, which is capped after 5 months, and 25 percent for late payment, which is capped after 50 months.
The government will send you a letter at some point requesting payment for your outstanding tax balance. If you ignore this letter, the IRS may file a Notice of Federal Tax Lien with your creditors, notifying them that the IRS has a lien on your personal property, real estate, or other assets. The government’s interest in your property is secured by a lien.