What happens if you don't file your taxes?

If you're not required to file a tax return, there may be no consequences at all for not filing a tax return, however, those who paid more in taxes than they owe will not receive a refund without filing taxes.

If a tax filer is under 65 and has a gross income below $9,350.00 then he or she is not required to file taxes according to the U.S. Internal Revenue Service, however taxes may still have to be filed if withholding were not made during the tax season; for example, income from self-employment without witholdings.

If one does not file taxes with gross income below this amount, there should be no penalties associated with not filing unless other conditions apply. If you are not sure if you must file, contact the IRS at 1-800-829-1040. The minimum filing amount varies with filing status i.e. married couples who file separately must file with a minimum gross income of $3400 or greater, yet married couples filing jointly, do not have to file with gross incomes below $18,700.00.

The penalties of failing to file tax returns vary from individual to individual and organization to organization. Generally, filing a tax return avoids stiffer penalties such as huge fines and criminal charges however penalties in the form of later fees may be incurred in addition to interest accumulated on taxes. In the case of businesses, the fines and process may be larger and more drawn out.

Federal penalties for failing to file taxes

The penalties for not filing taxes can range from mild to harsh depending on the offense and burden of proof is up to the Internal Revenue Service. A tax filer can sidestep the harsher penalties by filing tax forms without payment. This informs the internal revenue service the tax filer acknowledges the amount owed and is legally notifying the government of money owed. Some of the consequences associated with not filing taxes are as follows:

• Payment plan eligibility: Failure to file and/or pay taxes may eliminate or damage eligibility for payment plans on future taxes owed. Payment plans can reduce the tax shock of unplanned, mismanaged or unforeseen future taxes.

• Financial Penalties: Charges as high as 25% or more can be applied to existing taxes due if the taxes aren't reported and filed. The larger the tax owed, the greater the financial damage can end up being.

• No Refund: In the event a refund is owed to the tax filer, this refund may be given up if not claimed in time. A similar case is true with earned income credit i.e. if it is not reported, which it must be, a tax filer may not receive the credit for a given year on future tax returns.

• Social Security Credit: If one is self employed and fails to report income and taxes due one may not receive credit of money paid into the social security system in addition to incurring other charges and/or penalties associated with not filing.

• Delinquency Investigation: If the IRS finds that taxes are owed and have not been paid and/or reported, a "delinquency investigation" may follow shortly thereafter.

• Criminal Investigation: A formal investigation may be initiated by the Internal Revenue Service. In such cases, the IRS deems the non-filer to have deliberately not informing the IRS of tax responsibilities with the intent of fraud or tax evasion.

• Criminal Charges: The IRS may charge a tax filer with criminal offenses that could lead to imprisonment. These types of charges are very serious and should not be taken lightly.

• Fines: Fines can be as high as $25,000.00 in some cases. Such fines may be continual until the amount of taxes owed is acknowledged and paid in some manner deemed acceptable and according to the requirements of the Internal revenue Service.

• Correspondence: Multiple warnings, letters and/or phone calls may be received from the IRS if one has not filed the necessary tax documents.

Tax filing tips

In the event the April 15th deadline has passed and one has still not filed taxes contact the IRS and inform them of what has happened. They will probably be willing to assist and inform one of the necessary steps to avoid worse consequences. A few tips a tax filer may consider are as follows:

• File on time: Even if the amount owed cannot be paid, filing on time at least demonstrates the willingness to cooperate and can reduce a potential criminal offense to a civil offense or less.

• Form 9465: If taxes can't be paid right away file a form 9465 along with a 1040. This can spread out the payments if approved. A complete list of payment plans and costs can be found at the IRS website http://www.irs.gov

• Contact the IRS: If one has doubts or questions call the IRS at 1-866-829-1040. There are many representatives and specialized professionals who can assist.

• Tax plan: Planning for taxes can be a year round activity. It does not have to take too much time, but keeping an eye on one's income, tax withholdings, filing status etc. in addition to good record keeping and tax code awareness can better prepare one once tax season rolls around.

• Tax services: In some cases tax filing can be free as is the case with "freefile". Freefile is free federal tax filing service for tax filers with income levels below $54,000.00 There are also other services such as "Volunteer tax assistance" that a tax filer may be eligible for.

Summary

In summary, failing to file taxes can have no penalty or very large penalties depending on if one is required to file a tax return, if money is owned to the tax filer or the government revenue service and the magnitude of the offense. Tax fraud and tax evasion are illegal can lead to serious charges and penalties whereas failing to pay taxes but still filing can lead to less damaging consequences but still incur financial charges.

It is generally not worth it to not file taxes if one is required to do so. The psychological, financial and legal implications can be quite broad and the IRS understands not everyone can afford to immediately pay taxes. In such cases it is likely the government agency will help a tax filer to find a payment plan that is realistic. Furthermore, tax professionals and tax advisers may also be consulted prior to contact the IRS for additional insight into the situation.

Sources:

1. http://www.irs.gov/ (U.S. Internal Revenue Service)
2. http://articles.moneycentral.msn.com ('What If You Can't Pay The IRS')
3. http://ezinearticles.com ('Consequences of Not Filing a Tax Return Will I go to Jail)