Understanding the difference between tax evasion and tax avoidance is important. Tax avoidance is a perfectly legal route to minimizing the amount of income tax a person pays throughout the year. Tax avoidance is not only completely lawful, but it is a common part of tax preparation. Tax evasion, on the other hand, is an illegal practice. Intentionally engaging in tax evasion can result in fines, tax penalties, or even possibly jail time. Fortunately, tax evasion is easy for honest taxpayers to avoid. Continue reading to learn more about tax evasion.
Definition of Tax Evasion The official definition of tax evasion used by the IRS is a bit complex. To put it simply, tax evasion is using an illegal act or means to avoid paying taxes. Tax evasion is a felony, and is punishable with severe fines and even long-term imprisonment.
Affirmative Act in Tax Evasion Being convicted of tax evasion requires proof of three separate elements: the existence of unpaid tax, intent to evade a tax, and an affirmative act constituting an attempt to evade a tax. An affirmative act is any attempt to mislead the government or hide funds or assets from the IRS. A few examples of an affirmative act in tax evasion could be intentionally lying about your income, placing assets in another person’s name, or falsifying receipts and records to lower taxable funds.
Avoidance versus Evasion Tax avoidance takes advantage of legal means of reducing taxes and is not considered evasion. Placing the maximum amount of your income into a 401k, for example, or donating to various charities can reduce your gross taxable income. Both of these practices are perfectly legal. Tax evasion requires intent, and though most taxpayers are not in danger of committing tax evasion, you should consult a professional tax service if you have any questions about preparing your return to avoid potential fines and penalties.
The San Diego Tax Pro can help with all your tax return service needs. Our skilled tax preparers can take the guesswork out of filing your income tax to ensure that you get the maximum return for your work. Call The San Diego Tax Pro today at (888) 690-9245.