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Is tax avoidance the same thing as tax evasion?

On Behalf of | Dec 31, 2019 | Firm News

The tax code in the United States is complex and very confusing. Even professional accountants with a four-year degree and decades of experience could make mistakes about tax rates and write-offs given how frequently the regulations and rules about taxes, write-offs and income change.

As an individual who files their own taxes or depends on a professional to do it on their behalf, you are vulnerable to mistakes that could lead to accusations of tax evasion or even criminal charges. However, Americans tend to pride themselves on their independence, which can also include a desire to build their own wealth.

Avoiding the overpayment of income taxes and reducing your tax liability is a behavior that many people view as inherently American, due to its capitalist connotations. Avoiding excess tax is not a crime, but evading legal taxes is a crime. Knowing the difference between tax avoidance and tax evasion could be of utmost importance if you find yourself facing an audit or claims of underpayment by the Internal Revenue Service (IRS).

The law is set up to assist you with some tax avoidance

The United States does not have a simple tax system with a flat rate. Everything from the kind of business you conduct to the size of your family can impact your total amount of tax liability in any given year.

The government has rules in place to limit the tax liability of working professionals, heads of households and businesses. There are exemptions, write-offs and many other ways for an individual or business to substantially reduce its ultimate tax liability. In other words, the IRS makes it relatively easy for you to engage in tax avoidance.

Seeking opportunities to decrease your taxable income, giving charitable donations to organizations you support, and claiming all of your dependents and write-offs on your tax forms can help you avoid tax costs while still following the law. Text evasion, on the other hand, is an illegal activity that can result in criminal charges.

Tax evasion typically involves intentional misrepresentation or withholding information

There are many different ways for someone to criminally avoid their taxes, an action known as tax evasion. Tax evasion often involves doing something very questionable on your tax paperwork, such as claiming a dependent who doesn’t live with you, failing to report a significant source of income or otherwise attempting to manipulate the information reported to the IRS in order to reduce your real, legal tax obligation.

Whether you underreported your income or tried to write off personal expenses as medical costs or business costs, lying about or misrepresenting your financial circumstances, business situation or income to the IRS could lead to trouble. It could result in allegations of tax evasion and criminal charges that mean jail time and an obligation to repay the taxes you had hoped to avoid.

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