Tax Tiger says knowing the difference can save your financial life.
Yes, according to Tax Tiger, there is a difference. Tax Avoidance is the legal method for determining the correct amount of taxes that you owe. Tax Evasion, on the other hand, is intentionally hiding income or falsifying documents to pay less than your fair share of the government’s operating expenses. The IRS would rather each taxpayer break even at the end of the year; it’s much easier and less expensive than issuing refunds and policing returns for accuracy.
For business owners, Tax Avoidance may be as simple as keeping your books up to date and correct, points out Tax Tiger. By having all of your documents in order, Tax Tiger says that you can avoid paying taxes on expenses that you can write off. This idea sounds simple enough but small business owners account for a huge portion of the amount of taxes that are due and the amount of taxes the IRS actually collects, reports Tax Tiger.
Tax Tiger explains that individuals can effectively utilize Tax Avoidance by claiming their dependents. Having mouths to feed is a real expense; one that the government says that you have a right to acknowledge. Other personal expenses that considered Tax Avoidance are mortgage interest and education expenses, adds Tax Tiger. Additionally, Tax Tiger notes that charitable contributions are considered allowable Tax Avoidance expenses – as long as they are legitimate and not overstated.
Tax Evasion only becomes an issue when a taxpayer is dishonest about his or her income or expenses, cites Tax Tiger. For instance, waitresses who rely on tips but fail to report all of the cash supplements to their income are committing tax evasion. As well, Tax Tiger points out that young entrepreneurs, like the neighborhood teen who mows lawns in the summer, may fail to report this income. This, too, is unlawful.
In 2012, the IRS released their “Dirty Dozen” tax scam list. It is no surprise, says Tax Tiger, that nearly half of this list points out evasive techniques. The IRS claims that income hidden offshore falsely stated expenses, claiming no income, and even disguising corporate ownership are all illegal. As well, the intentional abuse of non-profit donations dollar amounts and misuse of foreign and domestic trusts round out the list of the biggest taxpayer “Don’ts.”
A good rule to follow: Always document your expenses honestly. If you are unsure about how to handle a financial situation, ask a professional.
90% of Americans over pay their taxes; the remaining 10% come to Tax Tiger. www.taxtiger.com