Does the thought of filing your taxes scare you more than The Exorcist? Tax time is upon us. You must, by law, pay tax on every dollar of income you earn. We all know that, but what does it mean and what happens if you don’t? This is a very quick, simple post on taxes.
In the USA, your government is funded by money paid by we, the people. Usually in the form of a tax on the money you make – income tax. For most of us, it is deducted automatically out of your check every pay period. Once a year you compare all of your deductions and exemptions against what you’ve had taken out of each paycheck and, based on your income and family status, the amount of actual tax owed is calculated. You will be issued a refund if you overpaid during the year or you will have to pay the difference if you are a little short. Your goal is to try to hit the amount owed right on the head; to not have a large refund or have to pay in a lot at tax time. A couple hundred dollars either way is about as close as you can expect once your financial life starts to get complicated.
A few years ago a coaching client of ours who was 100% self-employed admitted that he hadn’t filed income taxes for many years. I think I was more in shock about it than he was. I had to impress upon him that not paying your taxes would result in penalties and added interest, but that not FILING your return each year could result in federal prosecution.
The IRS doesn’t play around. And they WILL find out.
If you are in a position where you haven’t filed your taxes in past years, the only advice I have is to get thee to a CPA, stat. There is a concept called Coming In Out Of The Cold whereby if you initiate back tax returns without having to be tracked down by the IRS, you will most likely not face any prosecution. Just penalties and interest. Even if you have shoddy – or nonexistent – records of your earnings during those years, go see a CPA and get busy makin’ it right.
This article from Business Insider has a lot to say about the power the IRS wields.