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Difference Between Tax Evasion and Tax Avoidance

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According to United States federal law, it is crucial that we report our taxes accurately, honestly, and on time each year. Failure to do so can result in fines and other penalties by the Internal Revenue Service (IRS) — and may even lead to jail time.

There is a fine line between using legal methods to reduce the taxes you owe and committing a serious crime. Understanding the intricacies of tax crimes is crucial when it comes to defending yourself against these charges, especially if you are facing a conviction for tax evasion.

What Is Tax Evasion?

Tax evasion is a white collar crime where a person uses illegal methods to avoid paying his or her taxes. The IRS requires you to file each year, report your income and expenses truthfully, and to pay your taxes if you owe any — and failure to do so can lead to serious consequences.

The IRS commonly alleges that you committed tax evasion if you underreported the amount of income that you make during that tax year, claimed expenses that you are not eligible for or that the IRS otherwise does not allow, or failed to pay the taxes that you owe.

Other activities that may lead to a tax evasion charge include the following.

  • Keeping two sets of accounting books, one that reflects accurate income and expenses and another with falsified information for the IRS.
  • Overstating the amount of deductions that you claim on your taxes.
  • Transferring assets or income to different accounts or otherwise hiding this information to avoid reporting it on your taxes.
  • Filing false payroll tax reports or failing to file this information with the IRS.
  • Making false entries in your financial records.

Potential Penalties for Washington Tax Evasion

Penalties for tax evasion can be severe, depending on the circumstances of the alleged crime. Tax evasion is a felony, and you can carry this charge on your record for several years after conviction. In addition, you could face up to 5 years in prison, a fine up to $250,000, and a bill for the cost of the prosecution.

You cannot claim to be unaware of the law to avoid penalties for tax evasion as a defense to a conviction. However, if you did not intend to make the mistake that the IRS is using to prove that you committed tax evasion, you and your attorney can craft a compelling defense to either reduce the charges or dismiss them completely.

What Is Tax Avoidance?

Tax avoidance involves using legal methods to reduce the amount of taxes you have to pay during a given year. Unlike tax evasion, tax avoidance is not a crime and is a legitimate method of operation that businesses and individuals across the country use each year.

Common examples of tax avoidance include the following.

  • Deducting legitimate business expenses on your tax return.
  • Using tax credits to spend money on certain business expenses you qualify for.
  • Taking advantage of tax deferral programs, like 401(k)s and other retirement plans, to reduce your taxable income.

If you are struggling with filing your taxes this year, speak to a tax professional before the April 15th filing deadline. Bring all applicable documentation with you, including information about all of your streams of income and the expenses and deductions you may qualify for.

Are you facing penalties for tax evasion in Washington state? These charges can cause serious damage to your freedom, finances, and ability to establish credibility in the future. You need an attorney who can take the time necessary to understand your story and gather enough evidence to build a compelling defense in your behavior.

Hiring a lawyer for your tax evasion case can provide you with a number of benefits, such as access to established defense strategies and a deep knowledge of the Washington court system and federal tax law. If you have not done so already, contact a tax evasion defense attorney as soon as possible to discuss your case and begin planning your next steps.

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