What does R&B crooner Ron Isley, producer Jermaine Dupri, “Survivor’s” Richard Hatch and waiter Gregory Arthur all have in common?
They all went toe-to-toe with Uncle Sam – and lost.
Every year, millions of Americans fail to file their taxes with the Internal Revenue Service by April 15.
Even worse, tax dodgers often avoid paying years after they have solved their problems out of fear.
The penalty for failing to file a tax return is 5 percent per month on the balance, and up to 25 percent. But if they do not owe money, there is no penalty.
And if someone files a return and does not pay, the penalty is 0.5 percent a month on the balance – up to 25 percent.
In addition to those civil penalties, the IRS could prosecute you with a misdemeanor violation punishable by up to a year in jail and a fine of $25,000.
“They sent a letter, but I didn’t expect them to take such drastic measures,” said Gregory Arthur, a waiter at Bonefish Grill in Tampa.
Arthur failed to file his 2003 taxes and currently owes about $1700. “I’m on an installment plan, but my checking account is frozen until I pay the full amount.”
There’s no statute of limitations on past due tabs, but there is a three-year limit to collect a refund.
“Most students stay pretty up-to-date,” said Reginald Harrison, office manager at Jackson Hewitt Tax Service on Tharpe Street.
The easiest way to stay guilt-free when it comes to paying refunds is to send a check with the return. But there are two options people can take if money is low.
The IRS might allow you to pay your debt in installments, as in Arthur’s case. Most installment plans average one and a half years but can last up to 10 years by statute.
By using a plan called “offer in compromise,” people can plead to the IRS that they cannot pay the balance. If the IRS believes them, the debt will be forgiven.
Taxpayers who pay their own tuition should consider claiming tax credits for which they might be eligible when completing their federal income tax returns, advises the IRS.
A tax credit is a dollar-for-dollar reduction of taxes owed. Some credits are refundable, and taxpayer would receive a refund rather than owing any taxes.
There are two credits available, the Hope Credit and the Lifetime Learning Credit, for people who pay higher education costs.
The Hope Credit is for the payment of the first two years of tuition and related expenses for an eligible student for whom the taxpayer claims an exemption on the tax return.
The Lifetime Learning Credit is available for all post-secondary education for an unlimited number of years. A taxpayer cannot claim both credits for the same student in one year.
“If I didn’t claim Lifetime Credits, I would’ve owed about $800 in back taxes,” said Kimberly Towler, 29, a medical student at Yale University. “Had I known about deductions like that, I could’ve saved myself a lot of money over the years.”
More reputable companies will be better able to help you navigate deductions like these, explained Harrison.
“Most students who pay their own tuition are aware of the various deductions like the Hope and Lifetime Credits.”
Also, keep copies of completed tax returns.
People should keep Copy C of all Forms W-2, Forms 1099 showing interest and other income, and a record of any other information you filed with their return.
These records should be kept for at least three years from the date the return was due or filed.
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