Most people like to manage their taxes as soon as possible while others have a hard time paying their dues on time. Unfortunately, ignoring your taxes isn’t going to make them vanish. Tax debt can negatively impact your life and create many problems. Here’s an in-depth look at some effects of unpaid taxes:
Not eligible to get a federal tax refund
When you pay your taxes on time, you may be due a refund. The IRS usually sends your federal tax refund by mail or deposits it directly into your savings or checking account. However, once you start evading taxes, you’d lost the opportunity to get a federal tax refund since the IRS will use your money toward the balance due on your tax debt.
Interests and penalties
The IRS puts interests and penalties on unpaid taxes to deter people from evading taxes. Every year you’ll see a 5% added interest on your tax debt which will increase your dues significantly. Hence, if you wait longer to pay off your tax debt, it’ll become harder to settle a bigger amount.
Passport denial or revocation
Tax evasion is considered a serious offense. If you fail to pay your dues worth more than $53,000, you risk getting your passport revoked or passport application denied. Once the IRS certifies the State Department of your unpaid dues, you may get into legal trouble.
Seizure of money and assets
The IRS holds the legal authority to seize your property if you don’t pay your taxes. This is known as a levy. And if you don’t own property, the IRS can take away your savings from your bank accounts or garnish your wages. This can lead to quite a few challenges in your everyday life if you depend on your monthly income.
Before April, 2018 tax liens were a part of your credit report. This meant that creditors would be aware of your tax debt if you applied for a loan or mortgage. However, since credit reports don’t track your bills or payments, your tax records are no longer visible on them.
But this doesn’t mean that your unpaid taxes can’t affect your credit score. Once the IRS files a Notice of Federal Tax Lien against you, creditors can find the information through public records. This could be reason enough for many lenders to deny your application.
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