What is the difference between avoiding pay taxes and evading taxes?
Tax evasion is a serious criminal act that could result in prison time, tax evasion penalties, and more. Tax avoidance, on the other hand, is the perfectly legal act of structuring your affairs in order to pay the least amount of taxes possible. At times, there can be a fine line between what is legal and what constitutes a crime when it comes to taxes. Our San Diego tax controversy attorneys at Brunoro Law explore the crime of tax evasion and how you can protect yourself from facing tax evasion charges today.
What is Tax Evasion?
Tax evasion is a federal crime set out in 26 U.S. Code § 7201. Under the statute, it is a felony offense to willfully attempt to evade or defeat any legally imposed tax. Those convicted of tax evasion could face imprisonment of up to five years and fines of up to $100,000 ($500,000 in the case of a corporation), or both.
Tax evasion most often involves the knowing failure to report income. Under reporting of income can occur if you provide false information to the IRS about your business income or expenses, deliberately underpay owed taxes, or substantially understate your taxes. All of these acts must be done knowingly, not by mistake, in order to constitute a federal crime.
What is Tax Avoidance?
Tax avoidance is the legal minimizing of taxes through methods approved by the IRS. Businesses and individuals can avoid taxes by taking deductions and shielding their income through employee retirement plans, among other means. All of these tax avoidance steps are legal under the IRS Code or state tax codes.
Examples of common tax avoidance methods include placing funds in a tax deferred account, such as an IRA or 401(k), obtaining credit on your taxes for spending money on legitimate expenditures, and taking tax deductions to lower your tax bill.
Avoiding Tax Evasion Charges
Your best way to avoid tax evasion charges is to know the laws regarding federal and state taxes. Consult with a tax attorney for knowledgeable assistance with your taxes and help regarding any tax controversies. Your skilled tax attorney can guide you through maximizing your legitimate tax deductions, while not straying from the legal course.
Posted in: Tax Controversy