If you are like most Americans, you want to minimize the amount of taxes you pay and maximize your post-tax income. Knowing the fine line between tax evasion and tax avoidance can help you prevent mistakes that could have financial or criminal consequences.
When it comes to the payment of income taxes, the Internal Revenue Service (IRS) is substantially less worried about overpayment than it is about underpayment.
Individuals who don’t pay their full amount of taxes could wind up paying not only the balance of unpaid taxes but also substantial penalties and interest. In some cases, the IRS can also take legal action against someone that they believe engaged in tax evasion or tax fraud.
The IRS is very clear on its stance that tax avoidance or the attempt to minimize the amount of income tax owed is legal. Taxpayers can claim credits or deductions to minimize what they owe, and subsequently have to pay. If one invests in retirement funds or takes the child credit is practicing tax avoidance.
Tax evasion Is the process of attempting to pay less than what you legally should, which is considered a crime. It could involve not reporting certain forms of income, paying employees cash so that you don’t pay employment taxes or even trying to hide assets. In some cases, people engage in tax fraud to avoid paying taxes, possibly by claiming more dependents than they have or by trying to claim deductions that they don’t actually qualify to receive.
Defending Yourself if the IRS Inquires
Certain situations, such as a discrepancy between your tax return and an income filing provided by an employer can alert the IRS to potential tax issues. Other mistakes and oversights can also put you at greater risk for an audit or review.
Contact Our Office
When the IRS starts to look closely at your tax information or alleges that you have underpaid or evaded taxes, you may need to prepare yourself for an audit or to defend yourself against criminal allegations related to taxes. Make sure that you have experienced representation to help.
To learn more about the Difference Between Tax Avoidance and Evasion, contact The Law Office of Lance R. Drury.