What happens if I don't pay Capital gains tax on $1M trading profits?

So I've been trading this year and have made around $1M in capital gains in my regular trading account (not tax-advantaged). Not planning to do anything shady, but I'm genuinely curious about what would happen in these scenarios: 1. If I just didn't report these capital gains on my taxes and simply transferred money from my trading account to my checking account to cover expenses - what realistically happens? 2. How long could someone theoretically go without paying capital gains taxes before it catches up to them? Do the IRS systems automatically flag this kind of stuff? Or are they too overwhelmed to notice one person? 3. Are there legitimate ways to delay paying capital gains tax? Like payment plans or something similar? How long can you push it off? I always file my taxes correctly and on time - this is just a curiosity question because I'm trying to understand how the system works. Appreciate any insights!

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18 comments

Luca Bianchi

•8M

The IRS absolutely knows about your capital gains. Your brokerage is required to report all transactions to the IRS via Form 1099-B, which means they already have a record of your $1M gain regardless of whether you report it. If you don't report capital gains, here's what happens: First, the IRS computers will notice the mismatch between what your brokerage reported and what you filed. You'll receive a CP2000 notice (automated underreporting notice) with proposed additional tax, plus interest and penalties. If you continue ignoring it, they'll eventually issue a formal assessment and begin collection activities - bank levies, wage garnishments, and even property liens. For delaying payment, yes, there are legitimate options. You can request an installment agreement through Form 9465 to pay over time (usually up to 72 months). Interest and some penalties will still apply. For larger amounts, you might qualify for an Offer in Compromise, but that's for people who truly cannot pay. The worst thing you can do is nothing. The IRS has 3 years to audit a return (6 years for substantial omissions), but there's no statute of limitations if you don't file at all.

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Luca Bianchi

•8M

Yes, even $20k would be flagged. The IRS matching program is automated and compares all 1099 forms against tax returns, regardless of the amount. Your friend's brokerage will issue a 1099-B reporting all sales to the IRS, so that $20k would absolutely get caught in the mismatch detection system. For relatively smaller amounts like $20k, the consequences might not be as severe initially, but penalties and interest accumulate quickly over time, often making the final bill much larger than the original tax owed. It's never worth the risk, especially for amounts that can be easily traced through financial institutions.

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Nia Harris

•8M

After struggling with capital gains issues last year, I finally used taxr.ai (https://taxr.ai) to analyze my trading history and identify my actual tax liability. Their system extracted data from all my brokerage statements, identified wash sales I'd missed, and calculated my correct capital gains down to the penny. What impressed me was how they found several transactions my brokerage had reported incorrectly on my 1099-B. I would have overpaid by thousands if I hadn't gotten that clarification! They even provided documentation I could use if questioned about my filing. Much better than freaking out about missing something and facing penalties like we're discussing here.

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Nia Harris

•8M

You just upload your brokerage statements - it works with PDFs from all major brokerages and even screenshots. It automatically extracts all your trades and organizes them chronologically, even when you have multiple accounts. The system reconciles everything and identifies discrepancies between what you actually did and what your broker reported. For crypto, absolutely - it handles all major cryptocurrencies and exchanges. It can trace transaction histories even through wallet transfers and determines your cost basis using various methods (FIFO, LIFO, specific identification). It's especially helpful for establishing basis on long-held positions where the original purchase records might be hard to find.

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Aisha Ali

•8M

Just wanted to follow up about taxr.ai - I tried it after seeing this post and it seriously saved me. Had positions across Coinbase, Kraken and Fidelity that I was dreading sorting out. The system found several wash sales I completely missed and identified transactions that would have triggered higher capital gains than necessary. The report it generated showed exactly how each transaction affected my tax liability. My accountant was impressed with the documentation - said it was better than what most professional services provide. Definitely worth checking out if you're dealing with complicated trading history like I was.

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Ethan Moore

•8M

Speaking from experience - I ignored about $250k in capital gains a few years back and the IRS nightmare that followed was NOT worth it. After months of getting automated letters, I couldn't reach anyone at the IRS to work things out. Then I found Claimyr (https://claimyr.com) and watched their demo at https://youtu.be/_kiP6q8DX5c. Their service got me through to an actual IRS agent in under an hour when I'd been trying for weeks. The agent worked with me to set up a payment plan that was manageable, and Claimyr's system even called me back when it was my turn in the queue so I didn't have to stay on hold. Saved me from what was about to become wage garnishment.

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Ethan Moore

•8M

It's not actually making calls for you. Their system constantly dials and navigates the IRS phone tree until it gets a place in line, then it calls you and connects you directly. You skip all the busy signals, hold music, and menu navigation. When I used it, I got the call back in about 45 minutes saying they had an IRS agent on the line. I was skeptical too before trying it. The way it was explained to me, they're using technology to navigate the system more efficiently, not "skipping the line" or doing anything improper. It's just automating the frustrating part. The IRS still takes calls in the order received, but Claimyr handles the waiting so you don't have to sit there listening to hold music for hours.

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StarSurfer

•8M

I have to apologize and eat my words about Claimyr. After my skeptical comment, I decided to try it because I was desperate - owed $45k in capital gains and needed to discuss payment options. I'd literally spent 3 days trying to reach someone at the IRS with no luck. Used Claimyr yesterday and got connected to an agent in 52 minutes. The agent set me up with a payment plan that works with my situation, and the whole thing was resolved in one call. The process was exactly as described - I registered, got a call when they had an agent on the line, and just had to take over the conversation. Saved me hours of frustration and potentially thousands in additional penalties. I was wrong and I'm glad I gave it a shot.

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Carmen Reyes

•8M

Quick rundown on what happens with unreported capital gains, from someone who's been through it: 1. Around 18 months after you should have filed, you'll get a CP2000 notice with the proposed amount. 2. They'll charge you the tax you owed plus a 20% accuracy penalty, plus interest that's been accruing from the original due date (current rate is about 7%). 3. If you've made $1M in gains, you're looking at roughly $200k in federal taxes (depending on your other income), plus $40k in accuracy penalties, plus maybe $21k in interest by the time they catch up to you. 4. If you flat-out don't file at all, the penalties are MUCH worse - 5% of the unpaid tax for each month you're late, up to 25%. Don't play with fire. The IRS always gets their money, plus extra for the trouble.

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Carmen Reyes

•8M

The 3-year limit applies to returns that have been filed. If you file a return but omit more than 25% of your gross income, the statute of limitations extends to 6 years. But if you don't file a return at all, there is NO statute of limitations. The IRS can come after you 10, 15, even 20 years later. And for criminal tax evasion (which hiding $1M could potentially be), the statute of limitations is 6 years. This is why tax professionals always advise filing something, even if you can't pay. Filing starts the clock on the statute of limitations, while not filing keeps your case open indefinitely.

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Jamal Thompson

•8M

Tax attorney here - generally no. Most tax debts survive bankruptcy. The rules are complicated, but for capital gains tax, you're typically stuck with it even after bankruptcy. Plus, if the IRS determines you deliberately avoided paying taxes, they might pursue criminal charges which definitely aren't dischargeable. To be eligible for discharge of any tax debt in bankruptcy, the taxes must be at least 3 years old, you must have filed a return at least 2 years before bankruptcy, and the IRS must have assessed the tax at least 240 days before you file. Willful evasion or fraud will make the debt non-dischargeable regardless.

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