When it comes to IRS tax issues, you must have a good understanding of what is and is not legally permissible. This is especially important when it comes to tax evasion, which is a significant crime that may even amount to a felony charge.
The primary purpose of tax evasion is to reduce how much you owe the IRS, but there are legal strategies you can use to manage your tax bill. Here are a few crucial points to keep in mind.
Tax avoidance
Tax avoidance are methods of legally lowering how much a person owes to the IRS. Deductions are one common method that reduce your taxable income. Deductions are available for home offices, children, education costs, medical expenses, and many other situations. Making contributions to a retirement account during the year is another way to reduce taxes, as you can deduct contributions up to a certain amount.
Tax evasion
Tax evasion involves intentionally concealing how much money you owe the IRS or lying to lower your tax burden. Using cash to avoid reporting income to the IRS constitutes tax evasion, as does not including income you earn from any overseas properties or businesses. The IRS takes tax evasion very seriously and even created a Whistleblower Office that provides financial reward to individuals with information on wrongdoing.
If caught and convicted, a person may face a fine up to a $250,000 fine and a possible five-year jail sentence. There are also many civil penalties that apply, as well as interest payments on your tax debt. The IRS may also launch an investigation into your previous filings, going back as far as six years, depending on the situation.
There are many legal methods of lowering your overall tax burden. And if you are unable to remit taxes owed, working with the IRS can help you find a solution that avoids legal trouble.