The recently released Panama Papers have created uproar across the world. These leaked documents have once again put the spotlight on taxes – among other things.
While one can’t ignore the paper’s startling revelations, the aim of this blog piece is on tax evasion and tax avoidance.
Tax evasion and tax avoidance are often used interchangeably. Contrary to popular belief, tax evasion and tax avoidance are entirely different techniques. The difference lies in legality i.e. avoidance is considered lawful, while evasion is a global crime.
Tax avoidance is defined as the legal act of reducing taxes. An individual can employ methods approved by the Internal Revenue Service to avoid paying taxes that are within the legal framework.
Tax evasion, on the other hand, refers to the illegal practice of not paying owed taxes. Typically, individuals do not report their income or expenses to avoid paying taxes.
Tax avoidance is aimed at shifting or reducing current or future tax liabilities. This can be done by investing in government schemes, such as tax privileges, deductions, credits and exemptions.
The deliberate concealment or misrepresentation of income, disclosure of unreal expenses for deductions, incomplete transaction records, false or manipulated accounts, overstatement of tax credit, showing personal expenditure as business expenses are some examples of tax evasion.
Companies can evade taxes by not paying income taxes, sales and excise taxes, local, state and federal taxes.
The major differences between tax evasion and tax avoidance include:
Avoidance is the decline of tax burden, without infringing the law. Tax evasion is an illegal practice to avoid tax payment.
Avoidance involves taking benefit of the loopholes in the law. Meanwhile, tax evasion involves the deliberate concealment of income, expenses and taxes.
Tax avoidance involves making arrangements before the occurrence of tax liability. Conversely, the arrangements for evasion take place subsequent to the occurrence of the tax liability.
Tax avoidance results in postponement of tax, while evasion leads to nonpayment of taxes. Anyone found guilty of tax evasion may face criminal charges tax consulting services.
Be it tax avoidance or tax evasion, it’s necessary for companies and individuals to pay their taxes on time to avoid legal repercussions. The best solution is to hire experts to prepare, plan and manage your taxes. From tax planning tips to tailor-made solutions, we offer quality solutions for companies and individuals across the country.
Let us show you what a tax experience should actually feel like!
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