Everyone wants to keep more of their hard-earned income and avoid paying taxes. There are many tax avoidance strategies; however, an individual or business owner must take care to ensure that any steps he or she takes to reduce tax liabilities are legal. Often, when it comes to the IRS and tax avoidance, the line between legal and illegal is very thin.
In cases where the IRS believes that an individual or business owner deliberately took steps to file a fraudulent tax return(s) to evade paying taxes, he or she may be subject to harsh penalties including criminal charges.
While engaging in activities like under-reporting income, claiming false deductions and failing to account for foreign assets may reduce one's tax liabilities; they are also considered tax crimes and are likely to result in criminal charges and land an individual in prison. Conversely, much like corporations, there are smart tax planning strategies that individuals can employ to help reduce the amount of taxes one owes.
For example, a business owner would be wise to keep detailed records of any and all business-related expenses. By taking advantage of deductions related to travel, a home office, a motor vehicle and meals; business owners may be pleasantly surprised at the tax savings. Additionally, business owners and individuals would be wise to take advantage of every tax credit for which they may qualify.
Business owners should also investigate and understand how business designations may impact tax responsibilities. It's also wise to take advantage of capital gains tax breaks as well as other income-reducing strategies which can help an individual legally move into a lower tax bracket.
If you think you may have committed tax fraud or have questions or concerns about legal deductions, you will need to speak with an attorney:
Source: BizFilings.com, "Tax Avoidance is Legal; Tax Evasion is Criminal," Jan. 5, 2015
