Tax issues can land a person in legal hot water. Along with being financially penalized by the IRS, certain tax problems can also carry criminal punishments. Take the charge of tax evasion, for instance, which can carry severe penalties if convicted.
If you have concerns about your standing with the IRS, it is crucial that you know what you are up against. Here are a few important differences to consider when it comes to tex evasion and tax avoidance.
Tax evasion
Tax evasion involves willfully providing false information to the IRS regarding how much money you owe. For instance, individuals may try to write off personal expenses as business expenses to lessen their tax burden. Or they might fail to report income made internationally when paying taxes in the U.S.
As a felony criminal charge, tax evasion can result in harsh penalties. This includes a maximum fine of $250,000 or $500,000 for corporations. A person can also receive a prison term of up to five years. In many cases, individuals convicted of this crime will receive both punishments.
Tax avoidance
While tax avoidance can reduce your overall financial burden, it does so legally. Individuals can claim deductions to reduce their income, which then also lowers the amount of taxes they owe the IRS. They can also take advantage of tax credits, which lower how much they owe in taxes (as opposed to reducing taxable income).
As long as the methods used to reduce taxes or taxable income are not illegal, a person can engage in tax avoidance without risking criminal charges. However, it is important to follow applicable laws and codes to remain in the good graces of the IRS.
