Dec 23, 2024
A lack of financial literacy leaves many Americans in financial distress. However, in extreme cases, a lack of basic financial skills can also leave someone in legal jeopardy.
On a recent episode of The Ramsey Show, Bernon, a single dad from Lexington, Kentucky, confessed to Dave Ramsey that he hasn’t filed his taxes in three years.
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“I’ve just not had the money to file that,” he told the financial guru, despite later stating that he earns $80,000 a year as an independent contractor.
Ramsey responded with a terrifying wake-up call: stop “coasting” and file taxes within 24 hours or face jail time. “People do not get put in jail for not paying taxes,” he said. “They do get put in jail for not filing them.”
Bernon’s situation highlights why tax planning is so crucial.
Don’t mess with the IRS
According to the IRS, “The requirement to file an income tax return is not voluntary.”
And the agency's data indicates that very few Americans fail to file their tax returns every year. In the financial year 2023, the IRS launched only 979 criminal cases for legal-source tax crimes, one of which is failure to file tax returns. By not filing his taxes, Bernon risks becoming part of this small cohort.
This risk could be enhanced the longer he waits. Filing late might result in penalties and interest, but ignoring the tax man could result in criminal prosecution. In 2022, Houston-based businessman Arturo Alejandro Cruz was sentenced to one year in prison for failure to file tax returns with the IRS from 2011 through 2017.
This is why financial experts like Dave Ramsey and Suze Orman recommend everyone to file their tax returns as early as possible. If you struggle to file on time, deal with the complexity of calculating taxes or have a complicated financial situation, hiring a professional could be worth the investment.
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Hiring tax professionals
According to a recent YouGov poll, 20% of U.S. adults hired a tax accountant or professional to assist with their recent filing. Another 9% relied on the assistance of a local or community-based tax preparation service.
Delegating the mundane task of tax preparation to these professionals can help you stay on top of your obligations, reduce the risk of penalties and potentially reduce your tax burden every year.
If you’re self-employed or own a business, like Bernon, hiring a professional could be even more crucial as you deal with more complexity and irregular income.
Professional help isn’t necessarily expensive. According to a National Society of Accountants study from 2021, the average flat fee for a tax filing could range from $78 if you’re unemployed to $323 for Form 1040 filing with Schedule A to itemize personal deductions, and a state income tax return.
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Vishesh Raisinghani is a financial journalist covering personal finance, investing and the global economy. He's also the founder of Sharpe Ascension Inc., a content marketing agency focused on investment firms. His work has appeared in Moneywise, Yahoo Finance!, Motley Fool, Seeking Alpha, Mergers & Acquisitions Magazine and Piggybank.
