The Internal Revenue Service can impose penalties on those who do not follow the laws in regards to taxes. You could pay penalties for late filing, late payment or filing your return incorrectly. These penalties could eventually lead to credit damaging tax liens or the loss of your property through a levy.
Tax Penalties
The IRS can impose tax penalties if you do not file taxes before the tax deadline. If you do not pay your taxes after filing them, you can also be charged another penalty. If you file a frivolous return, which means that you did not take care when filing the return, you could be charged a penalty. If you underestimate your tax significantly, you could also be charged a penalty.
Cost
The most direct way that tax penalties affect you is in the extra cost. The penalty will usually be a percentage of the total amount that you owe. For example, the IRS charges a .5 percent penalty for each month you file past the due date. Besides the percentage penalty, you may also have to pay interest if you do not pay your taxes in time for the deadline.
Credit Impact
When you are charged a penalty by the IRS, it could ultimately lead to negative consequences for your credit. For example, failure to pay your taxes can result in a penalty and eventually lead to a tax lien. Once a tax lien is placed on your property, it will also appear on your credit report. This information will be included in the judgment section of your credit report and will be visible to potential creditors.
Other Consequences
Tax penalties can also lead to a levy of your personal property. With this strategy, the IRS can take your possessions to satisfy your tax debt. In some cases, the IRS may use a wage garnishment to collect money directly from your paycheck before you receive it. With this option, the IRS will work with your employer to set up the wage garnishment.
