What Exactly Constitutes Tax Evasion? The Penalties For Tax Dodgers
While it may be tempting to avoid the paperwork of filing your taxes each April, it wouldn’t pay off in the long run. The IRS doesn’t take tax fraud lightly, nor should it, considering that tax dodgers cost the US almost $200 billion in lost revenue each year.
Read on for an overview of what tax evasion is, and the penalties you could face if you are found guilty of it.
Tax Evasion vs. Tax Avoidance: Different Types of Tax Dodgers
Tax evasion and tax avoidance are two specific legal terms that refer to different types of tax dodging.
Tax avoidance is perfectly legal. It is the process of taking advantage of loopholes and parts of tax legislation to reduce the amount of taxes that you have to pay. Taking tax credits is a clear example of tax avoidance, and is something that you should do at every opportunity.
Tax evasion, on the other hand, is absolutely illegal and means that you lie on your tax returns. Tax evasion includes not reporting income, claiming credits that you don’t qualify for, or not paying the sales tax that you’ve charged customers for. Both individuals and corporations can be investigated and charged with tax evasion.
What Are the Penalties for Tax Evasion?
Tax evasion is a serious crime and is classified as a felony under the US criminal code, where it is referred to as tax fraud.
The guidelines outline a maximum fine of $100,000 and a prison sentence of five years. In the case of corporations, that maximum fine is $500,000 instead. Of course, the penalties and sentences handed down will depend on each individual case.
There may be additional costs associated with being found guilty of tax fraud. The IRS will likely charge you back taxes on any unreported income, including interest charges. The court may also order you to pay the legal costs of the prosecution as a part of your sentence.
Hiring a lawyer who has experience with the IRS, like Vic Abajian, can help you deal with complicated tax laws and ensure that you don’t accidentally pay less than you owe. They can also help you deal with an audit to avoid penalties prosecution if you are investigated for tax evasion.
Tax Evasion Isn’t Always Intentional
The term “tax dodgers” conjures up the idea of wealthy individuals with offshore accounts, cooked books, and wads of cash. In reality, many people may accidentally commit tax evasion by underreporting their income or not tracking cash payments they have received through the year.
But ignorance of the law isn’t a valid excuse, and it won’t hold up in court either. That’s why it’s essential that you keep good financial records and talk to a tax lawyer while filing each year.
For more information about taxes and personal finance more generally, check out the Business and Finance section of our blog!