The idea of tax avoidance is nothing new. It’s understandable; you work hard for your money and want to keep as much of it as possible.
Throughout history, individuals and businesses have sought to reduce their tax liabilities, some legal and some illegal. That’s why you must know the difference between tax avoidance and tax evasion.
Smart financial move or criminal activity?
Tax avoidance and tax evasion are two different things, but they are often confused. Tax avoidance is a legal way to reduce your tax liability, while tax evasion is an illegal attempt to avoid paying taxes.
Tax avoidance typically involves taking advantage of all legally available deductions, credits, expense countings, and other incentives offered by government fiscal policies. You can also delay or change when you pay taxes. You can do this if you think your income in the future will be lower than it is now.
On the other hand, tax evasion is an illegal activity that involves deliberately misrepresenting or concealing income or information from the IRS to avoid paying taxes. Some methods include underreporting income, overstating deductions, or failing to report certain types of income.
Tax evasion is a serious crime in the United States and carries severe penalties. According to the IRS, if convicted of tax evasion, individuals may be fined up to $250,000, and corporations may be fined up to $500,000. Additionally, individuals may face up to five years in prison for attempting to evade taxes.
By understanding the difference between tax avoidance and tax evasion, you can ensure you follow the law. If the IRS accuses you of deliberate misrepresentation when filing your taxes, it’s crucial that you comprehend the charges so you can strategize your defense.