It is important for you to be able to distinguish between the practices of tax avoidance and tax evasion. Tax avoidance is a perfectly legit way to lower how much you pay in business taxes every year, and it is actually an encouraged method of saving money on your taxes. Tax evasion, on the other hand, is not permitted by law. You commit tax evasion when you avoid paying your owed tax liability.
Tax Avoidance
Tax avoidance is a legal way of avoiding payment of too much tax. It is taking advantage of existing laws and loopholes in attempts to reduce the amount of tax that is due while giving a full disclosure of one's finances to tax authorities. People practicing tax avoidance do so by taking advantage of tax deductions or by changing the structures of their businesses or by establishing companies offshore. These are all legal and accepted by the government.
Tax avoidance is actually a relatively common practice among business entities. Though the name may appear to be a bit misleading, it is actually perfectly legit and even encouraged by the United States government. Through tax avoidance, you don't completely skip out of paying all of your business taxes; instead, you capitalize on the various deductions and loopholes available.
There are several ways that you can carry out tax avoidance. Many companies opt to invest chunks of their money in municipal bonds, which are not taxable. Depending on how much money they choose to invest, they may be able to reduce their taxes significantly. Another common tactic is to form a separate entity in an offshore jurisdiction, where https://www.sginccpa.com/business-tax-preparation-services/
corporate taxes are not applied.
Finally, owners of the company can avoid taxes by donating all of their personal assets to the business. Because the corporation owns all of the money you make, you will not be subject to the affiliated personal taxes. They may still have to pay corporate taxes, however.
Tax Evasion
Tax evasion on the other hand is willfully avoiding payment of taxes through illegal means. This is punishable by law and could send you to jail and make you pay a large amount in fines if proven guilty beyond reasonable doubt.
You should be aware of what tax evasion is, so that you don't accidentally engage in this illegal practice in your efforts to lower your taxes. This is actually considered to be a form of fraud, so even if you save a lot of money when you start off, when you are caught you will face high fines and years in federal prison. You commit tax evasion when you purposefully avoid, without the presence of a loophole, paying your tax obligations - either personal or corporate, or both.
If you are earning by way of employment or business, you are legally required to pay taxes. Cheating on your tax obligation is committing a tax fraud which is a criminal act done by intentionally violating your own duty of voluntarily declaring and filling the accurate amount of your income tax. There are many ways of committing tax law violations; one is to willfully misrepresent your income to avoid paying the exact tax amount that is due.
It also includes claims of false deductions, transferring or concealing taxable income or assets, misrepresenting or reporting deductions that are over the exact amount, having more than one book for your business, reporting of personal expenses as a business expense, and making false amounts in your business' books and records.
IRS Investigation
If the IRS finds any misrepresentations or discrepancies in your taxes, you will be invited for an audit. In such cases, it is recommended that you hire a criminal tax attorney especially if you have knowingly claimed too much deduction, underreported your income, or if you failed to file your income, tax returns. If you feel that you are susceptible and a likely subject of an IRS criminal investigation, hire the best criminal tax attorney that you can find. Having one will mean your freedom or time being incarcerated if ever found guilty by a grand jury.
Conclusion
This is very important as investigation is likely to be conducted way ahead of you being notified. The CID investigators are experts in law enforcement and its techniques; when they see an irregularity in your tax declarations, they will be conducting exhaustive and long investigations before they recommend your case for litigation.
