Yes, You Must Pay Taxes

Often when writing these articles, I come back to the conclusion that the best way to not worry about your tax return is to submit a legitimate tax return. Usually this comes about with ideas of trying to hide income or claiming deductions that are not true deductions. And with these, it usually comes down to that if you think you are bending the rules, you have probably broken the rules.

But of course, not everyone does this on purpose. People who go about filing their tax returns by themselves could legitimately think something counts as a deduction that does not. They also may not realize that some money they received should have been reported. This is where the assistance of a tax professional can help to avoid genuine mistakes.

With the proliferation of social media in recent years, though, there is more false information out there that can lead people to believe that they are finding actual loopholes to pay less tax. And beyond that, there are also claims that one does not have to pay any taxes at all. This comes from many theories, such as federal withholding tax is unconstitutional, paying income tax is voluntary, or that you can choose to not pay on religious, ethical, or moral grounds.

For more information on this, you can read this recent article from CPA Practice Advisor about how these claims will be labeled as “frivolous” by the IRS. Not paying taxes due to frivolous claims can result in consequences that run right up to criminal penalties. But even if someone’s actions don’t reach that level, there are some general IRS penalties one should keep in mind when it comes to not filing a tax return or not filing a proper return:

• Failure-to-file penalty of 5% of unpaid taxes per month

• Failure-to-pay penalty of 0.5% of unpaid taxes per month

• Accuracy-related penalties of 20% of underpaid tax

• Civil fraud penalties of 75% of unpaid taxes

• Erroneous refund claim penalty of 20% of the excess amount

• Fraudulent failure-to-file penalty of 15% per month

Just how much these can add up to depends on the level of what’s unpaid but it does make clear that even a relatively small unpaid amount can start to grow quickly when multiple penalties from this list are tacked on.

And of course, some people are still going to believe what they believe and awareness of this is not going to change their minds. But I did want to mention it here because it does backup that original idea of how valuable a legitimate tax return can be and how it is worth consulting those with knowledge instead of pulling it in from wherever one happens to see it.

Warmly,

Josh Bousquet
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