Taxes might just be one of the most dreaded subjects in America. This article details some of the basics to taxes, what it’s for, how it started, and what happens if you fail to file.
What are income taxes?
Income taxes are ways the government lowers the public’s income (earnings) to fund programs that are meant to benefit the public.
Taxes are levied on both earned and unearned revenue. Earned income comes from salaries, wages, tips and commissions. Unearned income comes from dividends and interest. Both forms of income are subject to taxes for individuals and businesses.
What are our taxes used for?
Federal income taxes are used to provide national programs such as defense, foreign affairs, social security, and towards our United States national debt.
State income taxes are used for local programs such as parks, roads, and schools.
Who collects taxes?
The IRS collects taxes.
The Internal Revenue Service (IRS) is responsible for administering and enforcing the Internal Revenue Code.
The United States Constitution (Article 1) grants the government the authority to organize and collect taxes. The IRS is a bureau within the Department of Treasury.
Origins of the IRS root back to President Lincoln’s time in office when taxes were needed to assist with the Civil War. The Officer of the Commissioner position for the IRS was created in 1862 along with the establishment of a permanent internal tax system.
Are taxes voluntary?
No.
According to the IRS, the requirement to file an income tax return is NOT voluntary and clearly detailed in sections 6011(a), 6012(a), et seq., and 6072(a) of the Internal Revenue Code.
What happens if I never file taxes?
We do not recommend avoiding taxes by not filing.
If you owe taxes, you will only incur a greater liability with penalties and interest by avoiding to file.
Not filing taxes will result in a Failure to File penalty imposed by the IRS. This penalty is 5% for every month overdue and will not exceed 25% of your unpaid taxes.
The IRS will periodically send you physical mail with the imposed penalties and interest. This is typically a stressful process that is best avoided by filing on time.
If you are due for a refund, it’s only natural to want to file your income tax return.
Either way, filing your income tax return on time or with an extension is extremely important to avoid further complications down the line.
If you would like to “avoid” taxes by decreasing your tax liability, speaking to a professional tax preparer could benefit you to find ways that you may be legally eligible to utilize.
Need help? Contact us today and we’re happy to talk taxes.