For most people the 2018 tax season has come and gone, and they are enjoying their federal income tax refund. For others, it is time to explore options to minimize the adverse effect of failing to file timely returns.
Yes, tax planning can be a complicated maze of calculated moves, but some may be seen as illegal measures to evade taxes. As such, it is important to know the basic differences between tax avoidance and tax evasion. This post will briefly explain.
On the one hand, tax avoidance refers to the use legitimate tax deductions to minimize taxable income. The less taxable income a person has, the fewer taxes will be owed (or paid). Common tax avoidance strategies include using applicable tax credits to reduce taxable income (and thus tax liability), and establishing tax deferral plans (such as IRAs or 401ks) to delay tax payments until a later date. Ultimately, individuals and businesses can lower their tax liability by using measures and calculations approved by the IRS.
Conversely, tax evasion involves the use of illegal practices to avoid paying taxes altogether. This includes the reporting of expenses that are not allowed under the tax code, and failing to report earned income, as well as affirmative steps to hide such income. Additionally, failing to pay sales taxes, applicable excise taxes or even employment taxes may be considered tax evasion.
Every year, scores of individuals and businesses fail to pay taxes and may have legitimate reasons for not doing so. But the notion of impropriety, and the potential penalties that come with it, justify the need for an experienced white collar crimes defense attorney.