What Happens If You Don't Pay Your Taxes?

 

Taxes are the lifeblood of any functioning society, providing the necessary funds to support government programs and services. Filing and paying taxes might not be the most exciting aspect of adult life, but it's a civic duty we all share.

Failure to pay taxes can have serious consequences, ranging from financial penalties to legal troubles. In this blog, we'll explore what happens if you don't pay your taxes and why fulfilling this obligation is crucial.

1. Accruing Interest and Penalties
   One of the immediate consequences of not paying your taxes on time is the accrual of interest and penalties. Tax agencies often charge interest on the unpaid amount, which can compound over time and increase your overall debt. Additionally, there are usually penalties associated with late payments, which are typically calculated as a percentage of the unpaid taxes. These financial consequences can quickly snowball, making it even more challenging to settle your debt.
   
2. Tax Liens and Levies
   If you ignore your tax obligations, the government might place a tax lien on your assets. A tax lien is a legal claim against your property, such as your home or other valuable assets. This prevents you from selling or transferring these assets without settling your tax debt. In more severe cases, tax authorities can issue a levy, allowing them to seize and sell your property to satisfy the unpaid taxes. This can lead to significant financial distress and disrupt your life.
   
3. Garnishment of Wages
   If you have a regular job, your wages could be garnished to cover your outstanding tax debt. Wage garnishment involves the tax agency legally collecting a portion of your earnings for your tax bill. This can directly impact your ability to meet your day-to-day expenses and financial commitments.
   
4. Legal Action and Criminal Charges
   Tax evasion is a serious offense that can result in criminal charges. If you deliberately and knowingly avoid paying taxes, you could face prosecution. Criminal charges can lead to fines and even imprisonment, depending on the severity of the evasion and the laws in your jurisdiction. It's important to note that neglecting your tax obligations can still have legal repercussions even if you didn't intend to evade taxes.
   
5. Damage to Credit Score
   Unpaid taxes can also impact your credit score, making securing loans, credit cards, or favorable interest rates difficult. Many tax agencies report unpaid tax debts to credit bureaus, which can stay on your credit report for years. This can hinder your ability to make significant financial decisions, such as buying a home or starting a business.
   
6. Collection Efforts
   Tax authorities have various tools at their disposal to collect unpaid taxes. They can issue bank levies, where they seize funds directly from your bank account or initiate property seizures to satisfy your debt. These collection efforts can disrupt your financial stability and leave you in a difficult situation.
   

Avoiding tax payments might seem tempting in the short term, but the consequences are far-reaching and can impact your financial and legal well-being. It's crucial to understand that paying taxes isn't just a legal requirement but a responsibility supporting essential public services and infrastructure. Suppose you're struggling to meet your tax obligations.

In that case, exploring options such as installment agreements or seeking professional advice to navigate your situation while avoiding the most severe consequences is advisable. Remember, proactive tax compliance is in your best interest for maintaining a stable and secure financial future.

Tax Preparation Services for Blue Springs and Surrounding Areas

 

In our age of technology, most of us have become do-it-yourselfers. This usually makes sense, but not regarding individual or business tax preparation. Entering a few numbers into the latest tax software might be quick and easy, but it could cost you hundreds or even thousands of dollars if you make a mistake. Don’t take chances with your tax return; trust a real person to prepare your taxes. Contact the Blue Springs, Missouri tax accountants at Alliance Financial & Income Tax. now.

We’re your best choice for tax preparation in the Kansas City, Missouri area because we keep up on all the latest revisions and updates to the State and Federal tax regulations. We’re constantly searching for new tax breaks and deductions we can use to save our clients money on taxes. From personal income tax returns to business tax preparation services, we work hard to minimize tax liabilities for all our clients.

Individual and Business Tax Services

When you turn to us for tax services, you’ll receive top-notch customer service from our friendly staff of knowledgeable accountants and financial professionals. We’ll happily answer your questions and always promptly respond to your emails and phone calls. Request a consultation through our website today or give us a call at 816-323-6561 to get started.

• Business tax preparation - corporate, LLC, etc.
• Tax returns for individuals
• Estate tax returns
• Non-profit tax preparation services
• Expatriate tax preparation and FBAR filing
• Quicker tax refunds with E-file

Use the Tax Code to Make Business Losses Less Painful

 

Whether you're operating a new company or an established business, losses can happen. The federal tax code may help soften the blow by allowing businesses to apply losses to offset taxable income in future years, subject to certain limitations.

Qualifying for a Deduction

The net operating loss (NOL) deduction addresses the tax inequities that can exist between businesses with stable income and those with fluctuating income. It essentially lets the latter average out their income and losses over the years and pay tax accordingly.

Eligibility for the NOL deduction depends on having deductions for the tax year that exceed your income. The loss generally must be caused by deductions related to your:

• Business (Schedules C and F losses, or Schedule K-1 losses from partnerships or S corporations),
• Casualty and theft losses from a federally declared disaster, or
• Rental property (Schedule E).

The following generally aren't part of the NOL determination:

• Capital losses that exceed capital gains,
• The exclusion for gains from the sale or exchange of qualified small business stock,
• Nonbusiness deductions that exceed nonbusiness income,
• The NOL deduction itself, and
• The Section 199A qualified business income deduction.

Individuals and C corporations are eligible to claim the NOL deduction. Partnerships and S corporations generally aren't eligible, but partners and shareholders can calculate individual NOLs using their separate shares of business income and deductions.

Limitations

Prior to the Tax Cuts and Jobs Act (TCJA), taxpayers could carry back NOLs for two years and carry them forward 20 years. They also could apply NOLs against 100% of their taxable income.

The TCJA limits NOL deductions to 80% of taxable income for the year and eliminates the carryback of NOLs (except for certain farming losses). However, it does allow NOLs to be carried forward indefinitely.

If your NOL carryforward is more than your taxable income for the year you carry it to, you may have an NOL carryover. That's the excess of the NOL deduction over your modified taxable income for the carryforward year. If your NOL deduction includes multiple NOLs, you must apply them against your modified taxable income in the same order you incurred them, beginning with the earliest.

A Limit on Excess Business Losses

The TCJA also established an “excess business loss” limitation, effective beginning in 2021. For partnerships or S corporations, this limitation applies at the partner or shareholder level, after applying the outside basis, at-risk and passive activity loss limitations. Under the rule, noncorporate taxpayers' business losses can offset only business-related income or gain, plus an inflation-adjusted threshold. For 2023, that threshold is $289,000, or $578,000 if married filing jointly. For 2024, the thresholds are $305,000 and $610,000, respectively. Remaining losses are treated as an NOL carryforward to the next tax year. That is, you can't fully deduct them because they become subject to the 80% income limitation on NOLs, reducing their tax value.

Important: Under the Inflation Reduction Act, the excess business loss limitation applies to tax years beginning before January 1, 2029. Under the TCJA, it had been scheduled to expire after December 31, 2026.

Planning Ahead

The tax rules regarding business losses are complex, especially the interaction between NOLs and other potential tax breaks. Contact the office for help charting the best course forward.

Choosing a reputable tax preparer is vital to tax security

 

As people get ready for tax filing season, they must select tax return preparers with the skills, education and expertise to prepare tax forms correctly. Taxpayers are ultimately responsible for all the information on their tax return, regardless of who prepares it.

Tax preparers include certified public accountants (CPAs), enrolled agents, attorneys, and others. Taxpayer should choose a tax preparer that works best for their needs.

Here are some tips to help people choose a preparer.

Check the IRS Directory of Preparers
Taxpayers can find an enrolled agent, CPA, attorney or participant in Annual Filing Season Program with the IRS Directory of Preparers

Checklist for choosing a tax pro
Before hiring a tax preparer:

• Check the preparer's history with the Better Business Bureau. Taxpayers can also verify an enrolled agent's status on IRS.gov.
  
• Ask about fees. Taxpayers should avoid tax return preparers who base their fees on a percentage of the refund or who offer to deposit all or part of their refund into their financial accounts. Taxpayers should be suspicious of preparers claiming they can get larger refunds than other tax preparers.
• Ask if the preparer plans to use e-file. The fastest way to get a tax refund is by e-filing and choosing direct deposit.
  
• Choose a firm or individual with a track record. Preparers may need to answer questions about the tax return months or even years later.
  
• Ensure the preparer signs the tax return and includes their Preparer Tax Identification Number. Paid tax return preparers must have a PTIN and include it on any tax return they prepare.
  
• Consider the person's credentials. Only attorneys, CPAs and enrolled agents can represent taxpayers before the IRS in tax matters. Other tax return preparers who participate in the IRS Annual Filing Season Program have limited practice rights to represent taxpayers during audits of returns they prepared.

Watch out for tax preparer scams.
Tax return preparer fraud is a common tax scam. Here are tips on avoiding unscrupulous tax preparers.

The IRS is committed to investigating paid tax return preparers who act improperly. Taxpayers can file a complaint if they have been financially impacted by a tax return preparer's misconduct or improper tax preparation practices.

How Women Can Prepare For Retirement

 

When our parents retired, living to 75 amounted to a nice long life, and Social Security was often supplemented by a pension. The Social Security Administration (SSA) estimates that today's average 67-year-old woman will live to age 88. Given these projections, it appears that a retirement of 20 years or longer might be in your future.¹

Are You Prepared For a 20-Year Retirement?

How about a 30-year or even 40-year retirement? Don't laugh; it could happen. The Society of Actuaries predicts that an average healthy woman that reaches age 65 has a 48% chance of living past 90, and a 26% chance of living to be older than 95.²

Start with Good Questions

How can you draw retirement income from what you've saved? How might you create other income streams to complement Social Security? And what are some ways you can protect your retirement savings and other financial assets?

Enlist a Financial Professional

The right person can give you some good ideas, especially one who understands the challenges women face in saving for retirement. These may include income inequality or time out of the workforce due to childcare or eldercare. It could also mean helping you maintain financial equilibrium in the wake of divorce or the death of a spouse.

Invest Strategically

If you are in your fifties, you have less time to make back any big investment losses than you once did. Protecting what you have may be a priority. At the same time, the possibility of a retirement lasting up to 30 or 40 years will require a good understanding of your risk tolerance and overall goals.

Consider Extended Care Coverage

Women have longer average life expectancies than men and may require significant periods of eldercare. Medicare is no substitute for extended care insurance; it only covers a few weeks of nursing home care, and that may only apply under special circumstances. Extended care coverage can provide financial relief if the need arises.³

Claim Social Security Benefits Carefully

If your career and health permit, delaying Social Security can be a wise move. If you wait until full retirement age to claim your benefits, you could receive larger Social Security payments as a result. For every year you wait to claim Social Security past your full retirement age up until age 70, your monthly payments get about 8% larger.⁴

Retire With a Strategy

As you face retirement, a financial professional who understands your unique goals can help you design an approach that can serve you well for years to come.

Aspects of your financial life to review as the year closes.

 

The end of the year can remind us of last-minute things we need to address and the goals we want to pursue. Here are some aspects of your financial life to consider as this year leads into the next. 

Remember that this article is for informational purposes and is not a replacement for real-life advice. Contact a tax or legal professional before modifying your tax strategy. The ideas presented are not intended to provide specific advice. Also, tax rules are constantly changing, and there can be no guarantee that the rules will stay the same for any period. 

Investments: If you still need to, consider contributing the maximum to your retirement accounts and review any existing retirement accounts from work. If you are eligible to make any catch-up contributions, consider making that decision.  

Retirement strategy: If you still need to, consider contributing the maximum to your retirement accounts and review any existing retirement accounts from work. If you are eligible to make any catch-up contributions, consider making that decision. 

Taxes: It's a good idea to consider checking in with your tax or legal professional before the year ends, especially if you have questions about an expense or deduction from this year. Also, it may be prudent to review any sales of property as well as both realized and unrealized losses and gains. Look back at last year's loss carried forward. If you've sold securities, gather up cost-basis information. As always, bringing all this information to your financial professional is wise.  

Charitable gifting: Plan charitable contributions or contributions to education accounts and make any desired cash gifts to family members. The annual federal gift tax exclusion allows you to give away up to $17,000 in 2023, meaning you can gift as much as $17,000 to as many individuals as you like this year. Such gifts do not count against the lifetime estate tax exemption amount as long as they stay beneath the annual federal gift tax exclusion threshold. Besides outright gifts, you can explore creating and funding trusts on behalf of your family. The end of the year is also an excellent time to review any trusts. Using a trust involves a complex set of tax rules and regulations. Before moving forward with a trust, could you work with a professional familiar with the rules and regulations? ¹ 

Life insurance: The end of the year is an excellent time to double-check that your policies and beneficiaries are up to date. Review premium costs and beneficiaries and consider whether your insurance needs have changed. Several factors could impact the cost and availability of life insurance, such as age, health, the type of insurance purchased, and the amount purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, you may pay surrender charges, which could have income tax implications. Before implementing a life insurance strategy, consider whether you are insurable. Finally, please remember that any guarantees associated with a policy depend on the ability of the issuing insurance company to continue making claim payments. 

Life events: Evaluating any significant life changes in the last year:

 

• Marital status
• Moving
• Changing jobs
• Buying a home
• Starting a business
• Inheritance
• Gifts
• Additions to the family.

 

All these circumstances can financially impact your life and how you invest and plan for retirement and wind down your career or business. While it's likely that you have already discussed these matters with your financial professional this year, bring them up in your review.

 

Citations

1. IRS.gov, September 15, 2023

Navigating the Maze: How Living and Working in Different States Affects Your Taxes

 

In an increasingly interconnected world, it's not uncommon for individuals to live in one state while working in another. This lifestyle choice can come with various benefits, such as better job opportunities, a lower cost of living, or proximity to family.

However, the complexity of the U.S. tax system can make this arrangement more intricate than it initially seems. Understanding how living and working in different states affect your taxes is crucial to avoiding potential pitfalls and optimizing your financial situation.

Residency vs. Domicile

Before delving into the tax implications, it's essential to distinguish between two key concepts: residency and domicile. Residency typically refers to where you physically live, while domicile is your permanent legal home. For tax purposes, your domicile is usually where you have the closest connections and intend to return, even if you temporarily live and work elsewhere.

State Income Tax

One of the most significant impacts of living and working in different states is the variation in state income taxes. While some states have no income tax (e.g., Texas, Florida), others impose significant income tax rates (e.g., California, New York). If you live in a state with an income tax but work in a state without one (or with a lower rate), you might be subject to non-resident or part-year resident taxation in the state where you work.

Double Taxation

The prospect of being taxed by two states—your resident state and the state where you work—can be daunting. Fortunately, most states have agreements in place to prevent double taxation. These agreements, known as reciprocity agreements, allow you to pay taxes only to your resident state, even if you're working across state lines. However, these agreements vary, and it's essential to check the specifics of the states involved.

Credits and Deductions

In situations with no reciprocity agreement, you might be eligible for tax credits or deductions to mitigate double taxation. The resident state might offer a credit for taxes paid to another state, reducing your overall tax liability. Additionally, the federal tax return allows you to deduct any state income taxes paid, softening the impact of dual taxation.

Filing Considerations

Living and working in different states often means filing tax returns in both states. You'll likely need to file a non-resident or part-year resident return in the state where you work and a resident return in your home state. Filing requirements, deadlines, and forms can vary significantly, so seeking professional tax advice is advisable to ensure compliance and maximize deductions.

Impact on Other Taxes

Aside from state income tax, living and working in different states can also influence other taxes. Sales, property, and local taxes can differ between states and impact your overall financial situation. Additionally, your domicile state might have specific estate and inheritance tax laws that apply to your situation.

Living and working in different states can offer numerous benefits, but the intricate web of state tax laws can complicate financial matters. To navigate this complex landscape, it's essential to understand your residency status, potential tax treaties, and available credits and deductions.

Seeking advice from tax professionals or financial advisors with expertise in cross-state taxation can help you make informed decisions, optimize your tax situation, and ensure compliance with tax laws. As you live and work across state lines, remember that staying informed is your best tool for financial success.