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Tax Evasion v. Tax Avoidance


Although the terms tax evasion and tax avoidance are often used interchangeably, in reality they are totally different concepts. The biggest difference between the two is that tax avoidance is legal, while evading taxes can get taxpayers in serious trouble with the IRS. Unfortunately, the line between the two concepts can seem blurry to those who do not have a background in tax law, so if you are a Florida resident and have questions about your own tax practices, you should contact a tax attorney who is well-versed in both state and federal tax law who can address your concerns.

What Qualifies as Tax Avoidance? 

The term tax avoidance is used to describe legitimate and legal methods of minimizing taxes. For example, many businesses avoid paying a portion of their taxes by using IRS-approved deductions to lower business expenses. Another legal way to cut down on a tax bill is to shield income from taxes by creating employee retirement plans, such as 401(k) plans or IRAs, which allows the employer to delay paying taxes until a later date.

Defining Tax Evasion  

Unlike tax avoidance, which involves using legal means to avoid paying taxes, tax evasion is the illegal practice of failing to pay taxes at all. The most common forms of tax evasion involve:

  • Failing to report income or under-reporting income by claiming less than was actually received;
  • Misreporting business expenses or income;
  • Failing to pay a tax debt;
  • Failing to withhold federal income tax from employee paychecks;
  • Failing to report cash payments made to employees;
  • Failing to file payroll tax returns;
  • Withholding, but failing to report payroll taxes;
  • Purposely underpaying taxes; and
  • Understating a tax amount on a tax return.

Although these are the most well-known ways to evade taxes, tax evasion can actually be practiced in connection with employment taxes, income taxes, sales taxes, and federal, state, and local taxes. Unfortunately, many people unwittingly commit tax evasion due to a misunderstanding of the law. Keeping a record of deductions and being familiar with the rules of payroll tax payments and reporting can help prevent these types of mistakes.

Many tax evasion cases are heard in tax court, although others are investigated and prosecuted by the IRS criminal division. If convicted of tax evasion, a person faces jail time, in addition to hefty fines and other penalties.

Call Today to Schedule a Free Consultation With an Experienced Tax Attorney 

Tax law is notoriously complex and many taxpayers and business owners are not aware of every aspect of tax reporting procedures. For this reason, it is important for those who have questions about their tax practices to speak with an attorney as soon as possible. To speak with an experienced Florida tax attorney about your own tax-related concerns, please contact Ronald Cutler, P.A. at 386-490-9949 to schedule a free one-on-one case evaluation today. You can also reach us by completing and submitting one of our standard online contact forms or by initiating a live chat with a dedicated member of our legal team.