What’s the Difference Between Tax Avoidance and Tax Evasion?

Herman Law discusses the difference between tax avoidance and tax evidence.

Tax avoidance and tax evasion sound very similar. It would appear on the surface that both actions are intended to reduce the amount of money you owe the Internal Revenue Service (IRS) or a state tax authority. However, one method of reducing tax liability is completely legal, while the other method can result in significant penalties and jail time.

If you have a question whether something you are about to do to lower your taxes could be considered a crime, it is best to speak with an experienced Florida white collar crime attorney before taking any action that could result in tax fraud charges.

What is the Definition of Tax Avoidance?

Tax avoidance consists of taking steps to minimize your tax liability by utilizing the provisions contained in the current tax laws and regulations. For example, a common method of tax avoidance used by almost all taxpayers is to claim legitimate tax deductions they are eligible to receive based on their current financial position. Likewise, electing to claim tax credits, exemptions, and setting up tax-deferral plans (i.e. retirement accounts) are also legitimate means of tax avoidance.

Tax loopholes may also be used for tax avoidance. Because the tax code is complicated, some individuals and tax professionals have discovered “tax loopholes” or technicalities that allow a person to reduce their tax liability without breaking the law. The key to using a tax loophole as a method of tax avoidance is to find a way to do so without breaking the law. Otherwise, using a tax loophole could be considered a crime. Additionally, using legitimate methods of tax avoidance that you are not eligible to use could be a crime.

What is the Definition of Tax Evasion?

Tax evasion is the act of intentionally failing to file your tax returns and/or pay your tax liability. It falls under the broader definition of tax fraud. Falsifying tax returns and tax records or using fraud to avoid paying or reduce the tax liability can also fall under the criminal category of tax evasion. Individuals and businesses can be guilty of tax evasion.

Some common examples of tax evasion include:

  • Failing to report income received
  • Not reporting all income sources
  • Underreporting income
  • Overstating deductions
  • Claiming expenses and deductions not permitted
  • Failing to file or filing false payroll tax reports
  • Maintaining a false set of books
  • Claiming personal expenses as business expenses
  • Transferring or hiding income or assets
  • Reducing payroll expenses by paying employees under the table, failing to withhold taxes, or withholding taxes, but not submitting the taxes to the IRS

The IRS aggressively investigates and prosecutes cases of tax fraud, including tax evasion.

Potential Penalties for Tax Evasion in Florida

The punishment for tax evasion in Florida depends on whether the matter is a civil or criminal matter. It also depends on whether a criminal charge is a felony or a misdemeanor. Felony tax evasion on the state level in Florida can carry severe penalties, including fines of up to $10,000 and up to 30 years in state prison.

At the federal level, penalties can include fines of up to $100,000 for individuals or $500,000 for corporations and up to five years in federal prison. The IRS may also decide to add additional penalties in some tax evasion cases such as seizing assets or placing liens on the property.

Contact a Florida White Collar Crime Attorney to Discuss Your Defense to Tax Evasion Charges

A charge of tax evasion is not a guilty verdict. Several valid legal defenses exist to tax fraud charges. Your first step is to contact an experienced Florida white collar crime attorney immediately to discuss your charges and defense options.

A Florida white collar crime attorney may help you resolve the matter by negotiating a fair tax resolution with the tax authority. If a resolution cannot be negotiated, your attorney aggressively fights to ensure that your legal rights are upheld. Schedule a consult with a Florida white collar crime defense attorney today. We want to help you protect your freedom, your property, and your income.