Taxes. Thereâ€™s no escaping them. And if you try, you could be in hot water with the IRS â€” no matter who you are. At age 44, famous chef Anthony Bourdain never had a savings account and hadnâ€™t filed his taxes for a decade. In an article on CNBC.com1, Bourdain explains that he used to always owe money, thanks to constant job-hopping, perpetual debt, and drug use.
â€œI didnâ€™t put anything aside, ever,â€ he told Wealthsimple in an article on BusinessInsider.com2. â€œMoney came in, money went out. I was always a paycheck behind, at least.â€ His major turning point came right before his first book, â€œKitchen Confidential,â€ hit store shelves and turned him into the famous chef and travel writer that he is today. After his risky career shift paid off he immediately called the IRS and credit card companies to settle his balances. Now, he is determined to never owe anyone money again.
If youâ€™re behind on filing your taxes, or owe an outstanding balance, know that you have options. Hereâ€™s what happens and how you can settle your balance and avoid further consequences.
What happens if you donâ€™t file your taxes?
No one individualâ€™s tax situation is the same, but everyone is subject to the same fees and interest charges if you donâ€™t file or pay on time. The first fee is called the failure-to-file penalty, which comes to 5 percent of your unpaid taxes for each month your tax return is late, up to 25 percent.
In the event you did file your tax return on time but didnâ€™t pay the total amount owed, you could be subject to a failure-to-pay penalty. This penalty is 0.5 percent of your unpaid taxes for each month you don’t pay, up to 25 percent. In addition, youâ€™ll pay interest charges equal to the federal short-term rate, plus 3 percent.
Donâ€™t wait until you receive a letter from the IRS before making a plan to file your taxes or pay an outstanding balance. By then your account will already be levied with interest and a host of fees. The sooner you start rectifying your tax situation, the fewer penalties and interest youâ€™ll pay in the future. Follow in chef Bourdainâ€™s footsteps and reach out the IRS to settle your balance before they have to contact you.
Canâ€™t pay your taxes?
The IRS offers options for taking care of taxes that canâ€™t be paid all at once. Whether you have a balance of $10,000 or as much as $50,000, you can apply for various payment plans that offer the chance to pay your tax bill in affordable installments. Look for Form 9465 or head to the IRS website and search for the Online Payment Agreement form.
If you continue to ignore your tax situation, it wonâ€™t ever go away. And you donâ€™t want to live in fear of not paying your taxes. Mr. Bourdain sums it up nicely, â€œto me, money is freedom from insecurity, freedom to move, time if you choose to make use of time. If they [IRS] call me in for a full audit, great, here I am. Itâ€™s all there. I lived a lot of years afraid of the bank, the landlord, and the government calling. Nowadays, itâ€™s nice to not be afraid.â€3