Are you committing tax avoidance or tax evasion?

Chuck Smith Attorney at Law

With the year winding down, it will soon be time for you and everyone else in California to turn your attention on tax season. Of course, you want to do everything you can to reduce your tax bill. Throughout it all, be sure you reduce your bill legally. 

NerdWallet explains the difference between tax avoidance and tax evasion. Understand what makes one legal and the other illegal. 

Tax avoidance  

With tax avoidance, you simply resort to legal and approved methods of lowering your tax bill. Examples include donating to charity or putting money into an investment account. 

Tax evasion 

In regards to tax evasion, a person purposefully resorts to illegal means to reduce the amount of taxes paid. Methods include intentionally hiding assets or reporting less than your actual income. 

What you stand to lose  

You may feel entitled to withholding taxes from the IRS. No matter your personal opinion, it is in your best interest to pay every cent you owe. By engaging in tax evasion, you risk jail time, a felony charge and a $250,000 fine. 

Even if you do not incur any of the above penalties, you could still face civil penalties. What that means is that you may have to pay underpayment, failure-to-file or accuracy penalties. What is worse is that the IRS does not hesitate to add interest on those penalties. With so much on the line, you are much better off working with an accountant or financial planner to use legal means to reduce your tax bill. 

This information is only intended to educate and should not be interpreted as legal advice. 

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