You want to avoid paying more tax than you need to—but—you do not want to commit tax fraud. It's important to understand where the line is drawn between these two approaches. What is the difference between tax evasion and tax avoidance?
Federal and state taxes keep this country running. From federal withholding to state and federal income taxes, the U.S. Department of Treasury depends on the voluntary compliance of U.S. persons to pay their share to keep the lights on and important governmental programs and services on board. But as any good tax lawyer knows, it pays to consider strategies to legitimately reduce your tax liability. Consider these definitions from the Internal Revenue Service (IRS):
- What is criminal tax evasion? Tax evasion occurs when a taxpayer intentionally underpays or outright fails to pay a tax liability.
- What is tax avoidance? Tax avoidance measures are those taken by taxpayers which work to reduce tax liability and maximize after-tax income.
Strategies for Lowering Your Tax Bill
Most people are interested in legally lowering their tax bills. Depending on your portfolio, there are many perfectly legal tax avoidance strategies to consider, including charitable donations, tax deductions, and tax credits. Consider different types of investments, capital gains planning, estate planning, and transferring wealth through gifts, among other strategies. The key to tax avoidance is knowing what is advisable for you and what is legal.
There are grey areas, too, like offshore tax havens. While many offshore tax jurisdictions are legal, how your assets are structured and held can make the difference between tax fraud and tax avoidance.
And then there are some clear-cut activities that fall into the category of tax evasion. Inventing deductions, knowingly misstating your income and its sources, keeping two sets of books, engaging in complicated and tax-abusive corporate transactions, and pilfering employment taxes are just the tip of the iceberg when it comes to tax evasion.
Tax avoidance allows you to plan and shape your tax liability in a way that minimizes taxes. Tax evasion is an activity intended to evade and avoid the payment of taxes due.
Use a Skilled Tax Lawyer
Learning how to legally avoid a higher tax bill means working with a qualified tax professional or tax attorney who can help you avoid tax errors. And keeping it legal helps you avoid the even more expensive errors that lead to prosecution for tax evasion.
At our firm, we pride ourselves on guiding our clients through the complexities of tax law, ensuring that every tax strategy is both effective and legal. Whether you’re in Northeast Ohio, Chicago, New York, or elsewhere in the country, give us a call at 440-250-9709 or visit our website for a personal consultation.
You can also check out our expert advice that could save you a lot more down the line. Our free eBook, 'Understanding Tax Fraud,' is packed with insights and tips to help you navigate tax laws confidently. Download it today and take a step towards smarter tax law planning.
