The top 3 things to know about tax evasion

Closeup of a computer screen with a dictionary defining the highlighted word ’tax evasion’.

The old cliché is true: The only sure things in life are death and taxes. You only have to die once, but you do have to pay taxes every year. If you fail to pay your taxes on time, you could face serious charges of tax evasion.

Tax evasion is when an individual or a business deliberately underpays or avoids its taxes. It’s a crime that can have severe consequences, including hefty fines and even jail time. Whether you are facing charges of tax evasion or you wish to prevent it in the future, take a look at the top three things you should know about tax evasion.

Calculating taxes

Tax codes can seem needlessly complicated, but the process for calculating them is fairly straightforward. This process can vary minutely, but it applies to individuals, families and businesses. The IRS calculates taxes based on factors like income, family size, expenses, deductions and credits. It then uses a chart to determine the taxes owed.

Tax evasion is not a mistake

Making an honest mistake on a tax form is not necessarily considered tax evasion. Humans are fallible, and out of the millions of companies and people who file taxes every year, some are bound to make a few errors. Even if these mistakes do result in underpaying your taxes, they are not usually considered criminal. The IRS must be able to show that you purposely tried to underpay your taxes.

Types of tax evasion

There are several methods of tax fraud, the most common of which is underreporting income. Some businesses and workers will attempt to hide part of their income from the IRS—lower income means lower taxes, after all. But this is illegal and is considered tax fraud. A second method is trying to manipulate the credit system by being dishonest about your circumstances. Finally, some people attempt tax evasion by simply not filing a tax return at all.

Posted in