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What is the difference between tax evasion and tax avoidance?

| Mar 21, 2019 | Criminal/Civil Tax Litigation |

Whether you hand a stack of papers to your accountant or decide to handle them yourself, getting your taxes done is necessary each year. While there are some exceptions, if one is required to file taxes, he or she needs to do their due diligence to properly file them. This also means that the details included are honest, accurate and clear. Failing to properly fill out tax documents could have negative results. While certain filings can get confusing and complex, some situations cannot be brushed off as minor errors. In some cases, the state or federal government may assert that one is evading taxes based on the information provided.

Let’s face it. No one wants to owe taxes. If a taxpayer understands their options and deductions, he or she could owe less. While this is a legitimate way to reduce what is owed, if a taxpayer lowers what they owe or enhances their return deliberately by providing false information, this could result in criminal consequences.

What is the difference between tax evasion and tax avoidance? In simple terms, tax avoidance is when a taxpayer uses deductions, credits and adjustments as a means to reduce tax liabilities. Tax avoidance strategies are legitimate ways to reduce what one owes or increase what they are paid back.

On the other hand, tax evasion is when an individual uses illegal means to avoid paying the taxes he or she owes. This could occur when a person transfers assets in order to prevent the IRS to determine actual liability or hiding assets after tax liability is due in order to evade payment. Tax evasion has serious consequences and could result in fines and imprisonment.

Dealing with criminal and civil tax liabilities can be a serious situation. One may not understand how to fully address these matters, making it important to take the time to fully understand the situation he or she is in. By taking action and understanding one’s legal rights and options, he or she could avoid hefty fines and penalties associated with these matters.