Member-only story
Tax debt is only scary when you do not know how to manage it.
Tax debt is any taxes that you owe to the IRS after the filing deadline. It does not matter if you filed your tax return before the filing deadline and paid a partial amount of your tax bill. The remaining balance will still be considered tax debt.
Pop Quiz
What percentage of tax filings are audited each year?
a) Less than 2%
b) Around 5%
c) Roughly 7%
d) Just under 10%
The IRS usually runs audits on somewhere between 1–2% of all income tax returns filed each year.
a) Less than 2%
How tax debt increases with time
Unpaid taxes always attract penalty. The IRS usually charges a 0.5% penalty on the total tax debt amount for failure to pay. At most, the IRS can charge 25% penalty on the total tax debt amount. Each month, the IRS charges not only penalty on tax debt, but also interest on the total tax debt. As the total tax debt increases each month due to penalty and interest, over time, it can grow into a significant amount.
