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There’s a fine line between minimizing and evading income taxes

On Behalf of | Feb 15, 2021 | Tax Law |

Taxes are a frustrating and unavoidable part of adulthood. While everyone has to pay taxes, most people desperately want to pay as little in taxes as they feasibly can. Most adult taxpayers will engage in some amount of tax avoidance to keep more money in their pockets and less going into the Internal Revenue Service (IRS).

Making charitable donations or searching for useful deductions could both be ways to reduce how much you have to pay in income tax. Unfortunately, there is a fine line between tax avoidance or minimization, and tax evasion or fraud. If you cross that line, even unintentionally, you could face an audit or even criminal charges.

 Misrepresentation or exaggeration often constitutes evasion

Tax evasion might look like you claiming more dependents than you have or trying to write off personal and recreational purchases as business expenses. Tax evasion could also look like intentional misstatements about your income or the interest/returns earned on investments.

Information that you completely fabricate is obviously information that puts you at risk if the IRS decides to audit your tax return. The same is true of anything that you exaggerate, overstate or intentionally minimize just for the tax benefits of doing so. Any amount that you avoid paying could eventually come due if the Internal Revenue Service notices discrepancies in your filings. On top of the base amount, you could also have to pay interest and fees.

Not all tax controversies lead to criminal charges

As intimidating as it is to get a letter from the IRS, staying calm is important for those facing tax controversies and audits. The best approach usually involves reviewing your financial records and getting ready to explain any inconsistencies or mistakes you may have made.

In some cases, the IRS may have made a mistake on their end, and an audit or a carefully drafted letter may be all that is necessary to fix the issue. Other times, you may be able to negotiate a resolution that prevents criminal charges. Getting help as soon as you find out that there is an issue with your taxes can increase your odds of avoiding a worst-case outcome.