After President Donald Trump signed the Tax Cuts and Jobs Act of December 2017 into law, it fundamentally changed tax laws in ways the average taxpayer has yet to fully appreciate. Most critics call it the, “Trump Tax Cuts for the Wealthy.”
However, it is too easy to blame the President or the government for the state of your taxes. You should know your tax bracket and the potentialities of your own deductions. For example, before the TCJA, the average tax return was about $2,900. In 2019, the average tax return is barely $2,000.
Its enough to make you want to pull a Wesley Snipes and stop paying taxes. However, you can ask Snipes how well that worked out for him. Here is what can happen if you suddenly decided you didn’t want to pay taxes anymore.
Uncle Sam Will Send You a Notice
You can be legally exempted from paying federal taxes if you make less than $10,400 a year. Even then, you are not exempt from paying local, state, and payroll taxes. If you make more than $10K annually and have been paying taxes for years, then abruptly stopping will only bring attention to you.
If you are not aware, your employer, your bank, your credit card issuer, and your mortgage lender all regularly send the I.R.S. information about your finances. Trying to stop paying taxes now is not really a good option. All it will do is put a spotlight on you. The government will send you a notice about it sooner or later. Or, the threat of an audit.
Penalties, Compounded Interest, and Fees
After the government sends you warning notices, you’ll begin racking up monthly penalties until you start paying taxes again. The failure-to-file penalty is a monthly 6% to 25% fee against how much you owe. Additionally, the failure-to-pay penalty is about 0.50% to 25% monthly.
Furthermore, you’ll accumulate a 3% interest fee that is compounded every day. After two or three months, you may face a $210 penalty on top of all the penalty fees.
Liens and Levy Threats
After about six months of not paying taxes, you may start getting some progressively impolite and legally threating I.R.S. notices. Like a tax lien. A lien is a legal notice that the I.R.S. can make a legal claim against your properties, bank accounts, and assets.
A tax levy is when the I.R.S. legally takes your properties, bank accounts, and assets. The I.R.S. could take your house, properties and vehicles and sell them at auction. Or, freeze and empty your bank account or garnish your paychecks. The longer you go without paying taxes, the more likely such scenarios can occur.
Imprisonment
Imprisoning you is the last thing the I.R.S. would do, since getting you to pay is their priority. You would have to maliciously defraud the I.R.S. out of hundreds of thousands or millions of dollars to be threatened with imprisonment.
Deductions and EITCs
Instead of not paying your taxes, figure out how to make the tax system work for you. Your employer withholds your pay for taxes, via the W-4, based on claimed allowances. The more allowances you claim, the less pay will be withheld.
Calculate your deductions. What are your Earned Income Tax Credits? Taxpayers forfeit almost a billion dollars annually in refunds because they don’t file a claim or are unaware of qualifying EITC’s. Some taxpayers lose out on $6,000 because of unclaimed EITCs.
Consult a tax professional and exactingly calculate your tax deductions and ETIC potential. Also, remember that the only thing more certain in life than death and taxes is how much trouble you’ll bring yourself if you try to stop paying taxes.
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Allen Francis was an academic advisor, librarian, and college adjunct for many years with no money, no financial literacy, and no responsibility when he had money. To him, the phrase “personal finance,” contains the power that anyone has to grow their own wealth. Allen is an advocate of best personal financial practices including focusing on your needs instead of your wants, asking for help when you need it, saving and investing in your own small business.