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Tax evasion is legal and involves using the tax law to reduce tax liability, while tax evasion is illegal and involves hiding or shifting income to avoid paying taxes. Professionals who help with tax evasion may be penalized. The line between the two can be fine and even income earned from illegal activities must be reported and taxed. Notable figures, including Al Capone, have been jailed for tax evasion.
Tax evasion and tax evasion are practices designed to reduce the amount people pay in taxes. The difference is that one involves legal means, while the other is illegal and is a form of tax fraud. Professionals such as lawyers and accountants who help people with illegal means to reduce tax liability may be penalized along with the taxpayer.
In tax evasion, people take advantage of the tax law to find ways to reduce their total tax liability. This is completely legal and many people practice every year at tax time. Using the services of a skilled tax attorney or accountant can save individuals significant amounts of money on their taxes. With tax evasion, taxpayers seek tax credits, write-offs, and other means to reduce their tax liability.
The tax code is constantly updated. Tax professionals keep up with changes to the law so they can advise their clients on the best ways to reduce the amount of money they owe. With tax evasion, people report all of their income as required by law and submit other financial documents as required, and the means used to reduce their tax liability are clearly documented on their tax returns.
With tax evasion, people avoid taxes by not scrupulously following the tax code, but by hiding or shifting income, making false statements on a tax return, and using other illegal means to pay less for their taxes. Some tax evaders avoid paying taxes entirely; People who work as independent contractors or receive money under the table for their work, for example, simply cannot report this income and thus avoid paying taxes on it.
The line between tax evasion and tax evasion can sometimes be very fine. There are some things that people can do with their money that are perfectly legal under the law, but could be read as attempts to evade taxes. Moving funds suspiciously and without a clear reason or documentation can attract the attention of tax authorities. Once the tax authorities suspect that someone is evading taxes, they will closely examine that taxpayer.
Notable members of the criminal community, including a figure no less important than the infamous gangster Al Capone, have gotten into trouble for tax evasion. Sometimes it’s hard to determine illegal activity and prosecute people for activities like mob involvement, but those people can be jailed for not paying taxes. In the eyes of the Internal Revenue Service, even income earned from illegal activities must be reported and taxed.
Smart Asset.
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